Observations on
Psychology and the Markets
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).
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.
