Daily Market Update – August 26, 2014 (Close)
Yesterday was just another day in what suddenly is becoming the same runaway train as has been seen throughout the past two years.
I don’t spend too much time looking at charts, but you do have to be impressed by the S&P 500 chart of the past two years. I’m far from a technician, but it’s hard to not notice a periodicity that demonstrates market dips, generally every 2 to 4 months and then predictable bounces higher.
Then, on top of that, it’s hard not to notice the fact that the lows encountered at each of those pullbacks are higher than the previous lows and the highs are higher than the previous highs.
For the technician that’s certainly a sign of more good things to come.
Certainly those who lived by the credo “don’t fight the Fed” were well rewarded for believing in that correlation, while those who similarly believed “don’t fight the trend” were equally rewarded.
The latter, though, is harder to abide, as there are so many invitations to try and game or time the trend, especially when it is punctuated by reasonably predictable ups and downs. Even with regular patterns there can still be some variation in periodicity and magnitude that can be sought to be exploited.
That was also the case from 2004 to early 2008 and then suddenly it wasn’t. But today, despite coming down from its intra-day highs, it still is.
With the S&P 500 hitting 2000 for the first time, the rally continued as the DJIA also hit a new high and the NASDAQ is closer to its generation ago high than many of us would have ever thought would occur in our lifetimes.
What really presents the challenge is similar to deciding whether small tremors, such as may be felt in California on such a regular basis are going to be harbingers for the big one.
Looking back at that 2004 to 2008 era with the great advantage of hindsight its tempting to suggest that the tremor felt in July 2007 may have taken the market to a low point that was below the line established by the previous two low points.
What does that mean?
Last night I was at a county hearing and had an opportunity to question an “expert” on his studies that he had portrayed as being of a scientific nature and had taken great pains to describe his methodology. His conclusions were then based upon these studies which were presumed to have validity, based upon systematic analysis.
He kept referring to the data he gathered as “facts,” with the expectation that there could only be one conclusion drawn from facts, when in fact, they were nothing more than data points. Facts are subject to interpretation, while data points are subject to analysis and then interpretation. and were subject to interpretation.
Upon questioning, he admitted that his conclusion, which were very firmly held, was based on only 4 data points and, in fact, there was no statistically significant validity to his claims, as he had also not performed any kind of statistical analysis there being so few points. Upon questioning, it was also clear that despite the manner in which he represented himself, he had no concept of simple and basic statistical concepts.
That, of course, didn’t stop him from the liberal use of the word “significant,” until ultimately questioned about its use.
The technical analysis and chart study isn’t very different.
The suggestion is there, but the validity is missing.
Still, it’s hard to argue with observable “facts.” The market keeps moving higher, despite attempts, that are half-hearted at best.
The question becomes one of recognizing the tremor that counts. The more tremors we experience that turn out to be meaningless, the more likely we are to ignore that which happens around us.
But the question “what does that mean?” again is worth asking.
Despite a market that seems to be very nervous about any challenges and despite a market that demonstrates a desire to ignore those challenges as quickly as possible, there is reason to continue having a foot in both worlds. One that exercises some caution and one that is hopeful of the trend continuing.
If you have cash that means there is reason to use it and reason to not use it all.
If there are profits? Take them. If there are profits to be made? Take the opportunities.
The uncertainty and the potential for opportunity are the only certainties. I plan to pay attention to both as the summer is soon a distant memory and some more serious activity comes our way.