Emotions, preconceived ideas, opinion, ideas, knowledge, beliefs…………mention a name of a stock, index, market, sector etc and all these things will flood our grey matter and hopefully from that will come a decision (of course many individuals are unable to come to any decision but that is another story). Yet this decision will likely be highly biased to ones previous experiences and previous experiences of others. Perhaps this is why the vast majority of fund managers consistently fail to outperform major market indices such as the S&P 500 or even “old fashioned” Dow Industrial.
Have you ever looked at a chart of a market going back over time and said to yourself……man that was so obvious in fact even a 5 year old could have told you that this market was going up (or down as the case may be)? Of course that statement would have been made in the total absence of preconceived ideas, emotion, or beliefs! OK how about we walk through a real life case in point!
Below are six charts, they represent major asset classes. In order to remove any preconceived ideas we have removed the names on the charts. We have placed a few trend and support lines on each gragh so that you get an appreciation of what we are seeing, but that is it.
Anyway, for each chart try and give it a “bullish” or “bearish” ranking based on what pattern you see…….
The first five charts we ranked as bullish. They all are well above their support levels and momentum is positive on at least a rolling 3 month (quarterly) basis. The last two charts look bearish, particularly the last. In fact the last chart has got some way to go before it would remotely qualify as being bullish.
Now what exactly were these charts? They are:
- The Old CRB Index know known as the “CCI” ( an equally weighted index of 17 commodities)
- The ETF “EWX” – a small cap emerging market tracking fund
- The Fidelity High Yield Bond Fund –”SPHIX”
- The “carry trade” ETF “DBV”
- The Fidelity Emerging Market Bond fund – “FNMIX”
- The US long bond ETF “TLT”
- Our old favourite the USD Index.
We chose these charts because they are the most sensitive to any impending change to the asset class and because the trends have relatively little random noise.
We hope that your bullish/bearish perspectives don’t change now that you have discovered what each graph is. Of course if your perspectives have changed then we rest our case.
Yes it seems rather daunting going into Friday with futures markets on their knees, but it takes more than one day to change a trend, and as of the close on Wednesday at least, each of the 7 charts above had reasonably clear upward or downward trends (perhaps with the exception of DBV and TLT). We don’t think that a storm in the dessert will change anything!
