Will We Rally? Maybe The More Appropriate Question Is Will I Win The Lottery?
I had much of this written in a post for next week but I'm going to break this minor topic out and simplify it. In the comments section of a post I made a few days ago, I remarked of this topic but I want to expand on it a little. There is a general feeling that a rally has started here. All we've done so far is stabilized within a wide band for a handful of days. And, not very convincingly, might I add. It was a reflex rally to a technical condition that most short term traders would take. There is a more compelling perspective based on fundamentals that we have simply seen a minor abatement of selling that will continue.
Looking at put.call ratios, surveys, how many stocks are oversold, the VIX or whatever is anecdotal at best. They are not independent variables. Using three, four or five of these tools is really looking at the same data.. Plus, you can't back test any of these measurements over the last one hundred years and gain any type of trading system that wouldn't bankrupt you first. It is ironic that some of the sentiment surveys have actually improved off of one positive day's pricing action. No respect for this market. As I've said before, sentiment is all contained in the stock(s). To extend this discussion beyond stocks, it's all contained in the asset itself. Ultimately, assets reflect fundamentals or as Ben Graham expressed this very fact, the market is a voting machine in the short term and a weighing machine in the long term. In other words, gamblers determine much of pricing action on a shorter term basis. Or, as I have said, just because a trader can, doesn't make it a reflection of reality.
Let me give you something to noodle over. Bear market rallies happen when Wall Street is in control. Not when bulls are in control. When Wall Street is in control. There are many angles to that remark. Maybe you know some of them, maybe more than me. This is not the 2000-2003 decline that many are using as a template to anticipate a rally. The fundamentals are not even close. And, because technical analysis is simply a function of fundamentals, don't expect a repeat of that type of decline. And, don't expect the technical tools that worked in that decline to yield similar results in this one. Time will come and time will go but there is a universal truth that is completely missing on most of Wall Street. Models are only as good as the fundamentals they reflect.
It's quite clear to me this current generation of quantitative genius on Wall Street has proven they have little if any concept of this reality. Quantitative and technical analysis if a function of fundamentals and not the other way around. The failure to understand this simple truth always leads to massive losses. In 2000 it was $13 trillion. From 2007 on we will likely see more than double or triple that amount across a wide spectrum of global assets. Will we rally? It's probably safer to play the lottery.
Looking at put.call ratios, surveys, how many stocks are oversold, the VIX or whatever is anecdotal at best. They are not independent variables. Using three, four or five of these tools is really looking at the same data.. Plus, you can't back test any of these measurements over the last one hundred years and gain any type of trading system that wouldn't bankrupt you first. It is ironic that some of the sentiment surveys have actually improved off of one positive day's pricing action. No respect for this market. As I've said before, sentiment is all contained in the stock(s). To extend this discussion beyond stocks, it's all contained in the asset itself. Ultimately, assets reflect fundamentals or as Ben Graham expressed this very fact, the market is a voting machine in the short term and a weighing machine in the long term. In other words, gamblers determine much of pricing action on a shorter term basis. Or, as I have said, just because a trader can, doesn't make it a reflection of reality.
Let me give you something to noodle over. Bear market rallies happen when Wall Street is in control. Not when bulls are in control. When Wall Street is in control. There are many angles to that remark. Maybe you know some of them, maybe more than me. This is not the 2000-2003 decline that many are using as a template to anticipate a rally. The fundamentals are not even close. And, because technical analysis is simply a function of fundamentals, don't expect a repeat of that type of decline. And, don't expect the technical tools that worked in that decline to yield similar results in this one. Time will come and time will go but there is a universal truth that is completely missing on most of Wall Street. Models are only as good as the fundamentals they reflect.
It's quite clear to me this current generation of quantitative genius on Wall Street has proven they have little if any concept of this reality. Quantitative and technical analysis if a function of fundamentals and not the other way around. The failure to understand this simple truth always leads to massive losses. In 2000 it was $13 trillion. From 2007 on we will likely see more than double or triple that amount across a wide spectrum of global assets. Will we rally? It's probably safer to play the lottery.
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