When The Narrative Is Just Wrong

JC Parets
August 6, 2018

I love this game. It's us against the world to try and make a buck in this market. Every day brings new opportunities and story lines. The hard part is distinguishing between what matters and what is just noise. We're hard wired to need to gossip and tell stories. It's who we are going back to the cognitive revolution 70,000 years ago. In fact, it would be unnatural for us not to participate.

Many of us get our gossip from the market. That's one reason why we all get along and share ideas with one another throughout the trading day. I see some women, for example, watching Bravo and the gossip shows on E and stuff like that. We all get our gossip in different ways. While there seems be little harm done by watching the kardashians or vanderpumps, by following some narratives in the stock market, there is actually a lot of money at risk. So for those of us who get our gossip fix from market story lines, it's especially hard to differentiate reality from fairy tales. 

As Technicians, we're lucky that our inputs are price-based, which is the only truth in this world. CEOs could be lying or just plain wrong. Accountants could be fraudulent or can make errors innocently. Economist and analyst estimates and opinions are just that: estimates and opinions. But when a buyer and a seller both agree to exchange shares at a specific price, that is fact and that will never change.

Lately, a popular bed time story they've been feeding you is about a deteriorating of market breadth. I've decided to look at the facts instead. Breadth Improvements Point To Higher Stock Prices was a post I wrote in April and It's not just a Few Names Leading The Way For US Stocks was another one I put out in early July discussing the improvements in market breadth, not the deterioration. In other words, we were seeing strength underneath the surface, and not a weakening market. This conclusion has been the exact opposite of the narrative they've been telling your parents on the tv.

Josh Brown this weekend was talking about the NYSE Advance-Decline Line as further evidence of bullish internals:

Chart by Ari Wald (Oppenheimer & Co)

He had this to say about the story tellers:

someday, the market’s leadership will narrow to just a handful of large cap stocks and there might be a reason to become concerned about the health of the secular bull. People who never believed in the bull to begin with will not be the best harbinger of this moment’s coming, because they will see signs of it all the time, too far in advance, jumping and darting at every crunched twig in the darkness around the campfire. It’s best not to listen to any of this and to remain focused on the trends themselves.

Another good one lately is in Tesla. The journalists hate it and wall street sell side hates it. If that's not the perfect combination for continued uptrend, then I don't know what is. The short interest is off the charts, so the fuel is certainly there as well. I still think $TSLA goes above 500! 

For me, it's about finding risk vs reward opportunities skewed in my favor. This is a very selfish endeavor. I've been lonely on the opposite side of consensus before, so this isn't my first rodeo. The great part about this business is that there's a scoreboard. Everyone is watching. We see the losers shorting the stock market the past decade and buying gold or whatever other stupid idea they've come up with.

Do you want to trust the facts or the narratives? It's up to you. For us, I think the fact that consensus today seems to be on the opposite side of reality, in both market breadth "deterioration" and Tesla stock, there are opportunities to profit. Which directional move will upset more people? I think the answer for both is higher.

Let me know what you think.

JC

 

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