FM Wealth Management Newsletter
Last week the S&P (SPX) dropped and held to the support region
estimate that we set out within 3 points, and began a rally up after
reaching that level.
Not withstanding all the Hindenburg like prediction, regarding market valuations and near record low volatility. We are only scratching the surface of all the reasons analysts have been putting in front of investors as to why this market is, in their opinion, “too high.” You may ask is this time different? Is it possible that we have finally conquered the boom and bust business cycles and therefore stock market will rally on forever?
Absolutely not.
But it is also ridiculous for economists and seasoned investors to suggest that because their methods of market evaluation have failed them, that they therefore need to conclude that we need to prepare for a market crash, it does make us question the logical of perspective of their analysis.
In other words how does one come to the conclusion that if an analysis method is not working, then you must prepare for a crash?
If one understands the nature of technical divergences, then you can also come to an understanding of fundamental divergences, and of course this would begin to explain why most standard methods of evaluating the stock market have been useless for two years now.
If we look at a statement by MIT Nobel Laureate, Paul Samuelson who recently stated, that even John Maynard Keynes was challenged for altering his position on some economic issue. Keynes replied to this challenge by saying, “When my information changes. I change my mind. What do you do?” So should they begin to see that fundamental nature of the stock market has changed, and therefore have people changed their minds? No-way. Instead they choose simply continue to apply their old analysis methods and of course conclude that we are going to crash.
In other words we saying that this “Market melt-up” would have the effect of breaking down old paradigms and correlations, thereby leaving many confused as to the nature of the market.
So did anyone take notice of this very thing happen? Yes they did. In early 2017, Andrew Sheets at Morgan Stanley began to take notice, and noted that that while ‘crash’ is not a term used lightly adding that “our editors here at Morgan Stanley won’t let us use it without a good reason” he “struggles to think of another word to describe just how much, and how sharply, cross-asset correlations have fallen. In just four months, we have gone from a market of unusually close linkages across markets, to one with usually divergent returns.”
Our objective methodology allowed us to attain a 30% gain off the 2016 lows, despite our invalidated expectations for a break out set up to occur. What were are trying to say here is that anyone who analyses the Markets needs to develop methodologies that give them advance warning as to when their primary expectations are wrong, rather than stubbornly clinging to something that is not working.
When the market changes, what should we do?
As long as the S&P does not break down below last week’s low, it should be able to take us to 2610 SPX or possibly even higher. Having said that we are acutely aware that the depth of the drop last week has certainly weakened the SPX.
If it were not for the IWM pattern we saw, we would almost assume the SPX has topped. Because of this IWM pattern we saw it is still likely set up to rally in the coming weeks to the 150+ region before a larger degree top is made – as long as it does not break 143.90. For this reason, we still will retain an open mind that the SPX can reach higher targets.
Not withstanding all the Hindenburg like prediction, regarding market valuations and near record low volatility. We are only scratching the surface of all the reasons analysts have been putting in front of investors as to why this market is, in their opinion, “too high.” You may ask is this time different? Is it possible that we have finally conquered the boom and bust business cycles and therefore stock market will rally on forever?
Absolutely not.
But it is also ridiculous for economists and seasoned investors to suggest that because their methods of market evaluation have failed them, that they therefore need to conclude that we need to prepare for a market crash, it does make us question the logical of perspective of their analysis.
In other words how does one come to the conclusion that if an analysis method is not working, then you must prepare for a crash?
If one understands the nature of technical divergences, then you can also come to an understanding of fundamental divergences, and of course this would begin to explain why most standard methods of evaluating the stock market have been useless for two years now.
If we look at a statement by MIT Nobel Laureate, Paul Samuelson who recently stated, that even John Maynard Keynes was challenged for altering his position on some economic issue. Keynes replied to this challenge by saying, “When my information changes. I change my mind. What do you do?” So should they begin to see that fundamental nature of the stock market has changed, and therefore have people changed their minds? No-way. Instead they choose simply continue to apply their old analysis methods and of course conclude that we are going to crash.
In other words we saying that this “Market melt-up” would have the effect of breaking down old paradigms and correlations, thereby leaving many confused as to the nature of the market.
So did anyone take notice of this very thing happen? Yes they did. In early 2017, Andrew Sheets at Morgan Stanley began to take notice, and noted that that while ‘crash’ is not a term used lightly adding that “our editors here at Morgan Stanley won’t let us use it without a good reason” he “struggles to think of another word to describe just how much, and how sharply, cross-asset correlations have fallen. In just four months, we have gone from a market of unusually close linkages across markets, to one with usually divergent returns.”
Our objective methodology allowed us to attain a 30% gain off the 2016 lows, despite our invalidated expectations for a break out set up to occur. What were are trying to say here is that anyone who analyses the Markets needs to develop methodologies that give them advance warning as to when their primary expectations are wrong, rather than stubbornly clinging to something that is not working.
When the market changes, what should we do?
As long as the S&P does not break down below last week’s low, it should be able to take us to 2610 SPX or possibly even higher. Having said that we are acutely aware that the depth of the drop last week has certainly weakened the SPX.
If it were not for the IWM pattern we saw, we would almost assume the SPX has topped. Because of this IWM pattern we saw it is still likely set up to rally in the coming weeks to the 150+ region before a larger degree top is made – as long as it does not break 143.90. For this reason, we still will retain an open mind that the SPX can reach higher targets.
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