Observations on
Psychology and the Markets
At the end of September, the Telecom Services Sector will cease to exist, and the new Communication Services sector will be born. I created this post following a morning of Googling to try and gather the best information out there. Let's review what is happening, how it will affect existing sectors, and how investors should think about this change.
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.
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.
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).
I was a guest speaker again this week on MarketWatchers LIVE over at StockCharts.com. Always a pleasure to speak with Tom Bowley and Erin Swenlin who demonstrate straightforward and powerful methods to understand the markets through charts.
I've been chipping away at articles I've stored in my Pocket and just made it through a series of pieces on the "Sell in May" phenomenon. If you're not familiar, the proclamation "Sell in May and Go Away" speaks to the perceived seasonal trend where the US stock market tends to be weaker in the summer to fall period than the winter to spring period.
