Observations on
Psychology and the Markets
Predicting the future direction of the markets is 1) really difficult, 2) never about certainties, and 3) all about probabilities. Because of those three truths, I like to focus on price itself. As legendary technical analyst and mentor Ralph Acampora once said, "The only thing you can't restate is price." Three charts in my daily routine have started to turn from bullish to bearish, suggesting caution in the coming weeks and months.
Slowly but surely chipping away at my Pocket queue, I came across an article entitled "If You're Too Busy for These 5 Things, Your Life is More Off Course Than You Think." An article combining mindfulness with aviation was pretty much custom written for me!
Two themes stand out as I review the charts this week. First, the leadership of the supersized MANIA names that seem to dwarf everything else. Second, charts in the Financials sector that have been notable underperformers over the last six weeks. Let's review both of themes and let the charts tell the story.
I wrote an article back in November highlighting the way that ETFs are often launched once an investment thesis has become way oversubscribed. We looked at the recent example of the ProShares Decline of the Retail Store ETF, ticker EMTY (no kidding). Can you guess what happened next?
A respected former colleague of mine absolutely loved to play devil's advocate. Whatever investment thesis was posed, he would always take the other side of the argument. Over time, I began to understand and respect this approach. Sometimes his challenge would expose behavioral biases such as confirmation bias or the endowment effect, leading us to reconsider our outlook and positioning.
About five weeks ago, I wrote an article for stockcharts.com regarding the US Dollar breaking out to the upside. Based on previous resistance and Fibonacci retracement levels, we reviewed upside price objectives for the Bullish Dollar ETF ($UUP).
