When you talk about some of the most valuable tools for market participants, there are very few out there better than the community that is Stocktwits. One of the most difficult things to do is consistently avoid the noise that surrounds the market and changes in the prices of stocks, commodities and currencies. There are too many commentators and headline writers that get paid to make noise and not to try to make money in the market. This increases noise levels and makes it difficult for the average investor to differentiate between what is real and what are click-bait, air-time filling exaggerations. What I love about the Stocktwits platform is that you can curate your own stream. You follow who want to follow and ignore who you need to avoid. If there are users just creating noise and not adding any real value, you don't have to worry. We have the advantage of only seeing information from the users we want to hear from. The noisemakers eventually get booted out anyway. It's a great community and today I wanted to share with you guys who some of my favorite follows are on the platform.
This has to be one of the more hilarious things that smart people say all the time: "The problem with technical analysis is that it only looks at information from the past". This, to me, is a classic case of nonconcious human mimicry. Some of that research in this area of psychology is fascinating to me as humans tend to mirror the behavior patterns of others. In this example, it's clearly just people repeating something that they once heard, and not something they've actually thought through. I mean, come on. The problem with technical analysis is that it only looks at information from the past? As opposed to what? Information from the future?
Last week I published an open letter about the current market environment and went over a lot of the things that I’m seeing out there in stocks, commodities, currencies and interest rate sensitive markets. I have to tell you that I’ve never received so much positive feedback from anything I’ve ever written. All Star Charts first launched 5 years ago and I’ve been writing and sharing ideas on the platform pretty much every single day since. I’ve written thousands of posts and shared 10’s of thousands of charts, but you guys came back to me last week more than you ever have in the past. I want to thank you for that.
It seems more appropriate now than ever to follow up with some of the things that I’m seeing today.
I look at stock markets and asset classes all over the world to approach the marketplace from more of a weight-of-the-evidence, top/down perspective. This way I can formulate a thesis, confirm that by what I’m seeing elsewhere, and then put together a plan that presents the best risk vs reward scenario in order to best execute going forward.
We talk a lot about the S&P500 and Dow Jones Industrial Average. Lately it's been the Nasdaq100 leading the charge and actually the only index that hit new highs this month. Each of these are popular due to their large-cap components. In other words, these indexes consist of some of the biggest companies in America and most are household names like Apple or Microsoft, Exxon Mobil and McDonalds. These indexes are either cap-weighted, where the largest companies represent the largest percentage of the index or price-weighted, as in the Dow Industrials, where the highest priced stocks represent the largest holdings in the index. Today I want to focus on a broader equally-weighted index to get a better idea of what the market as a whole looks like.
Guys, let's just get something straight: we do not live in an average world. We never have lived in an average world. We most likely will never live in an average world. That's just math, or science, or both I don't know. But it is a fact. Think about how funny it is to hear someone say, "Well, on average XYZ goes up 2% after earnings". Really? What the hell does that have to do with anything? So you mean a few times it lost over 10% overnight, a few times it rallied over 10% overnight, sometimes it fell somewhere in between.....so "on average" it goes up 2%? Are you kidding me? Are we trying to make money and manage risk or fill airtime with irrelevant facts so we can sell more ads?
Today I want to bring up something that I discuss often, but I'm not sure that I ever explained clearly in a blog post. Long-time readers know that I only use a handful of tools as a supplement to price action. I want to reiterate "supplement", because price is the most important indicator we have, it's the only one that we can actually trust, and the rest are there simply to add confirmation or help dissuade us away from our thesis.
The 200 day moving average is one that is mentioned a ton throughout the financial media and twitterspheres of the world, but is often misinterpreted for whatever the reason. Usually the 200 day is referring to
