It occurs to me that I probably come across as unduly derisive (or needlessly blunt) at times, but much of what I read from financial news portals on a daily basis is fingernails on a chalkboard.
That sensation tends to be more acute during periods when volumes subside and activity ebbs. My guess is that during lulls, journalists are compelled to manufacture content for the sake of it, and manufactured content is disagreeable to my constitution.
Take the chart (below) for example. It’s just what it looks like: The index and analysts’ forecasts for where it will be at year-end.
That is a meaningless chart, for reasons I certainly hope are obvious. If the index keeps going up, analysts will just raise their targets, so what’s the point?
The standard, boilerplate commentary around that visual goes something like this: Barely four months into 2021, US equities have already eclipsed Wall Street’s year-end forecasts, leaving some strategists scratching their heads, while others warn that investors may be too complacent.
Imagine paying somebody to write that. Worse, imagine waking up everyday and having to write that, doubtlessly unnerved by the realization that you’ve written some version of it countless times over what, in conversations with your friends and family, you’re in the habit of calling a “career.”
The red line in the chart (above) should properly be labeled “crowd-sourced guess.” The blue line should be: “Mania/despair index of public sentiment regarding certificates of ownership in make-believe legal entities, on weekdays.”
The figure (below) shows that our mania/despair index now sits above what quite a few otherwise sane people imagine are meaningful lines derived from it.
The irony, of course, is that if the most accurate way to describe equity benchmarks is just to call them unruly lines that oscillate unpredictably on days when we let them loose (so, not on weekends and not on holidays like “Good Friday,” a prequel to “Easter Sunday,” when westerners tell their children that a giant, egg-laying bunny is coming to have a lawn party with them in celebration of that time a magic wizard cheated death), then things like moving averages and other technical indicators are probably more useful than most fundamental analysis.
But please, whatever you do, don’t take that as an endorsement of technical analysis. The only thing those “signals” are really good for is triggering algos which, once they can speak, will probably ask us why we turn them off every sixth and seventh days. This is why just about the only analysis that’s worth reading in modern markets is commentary centered around predicting and/or explaining why algos do what they do and when they’re likely to do it next.
Once upon a time, when I first started writing for public consumption in my current incarnation, there was a guy (a nobody who steadfastly believed he was a somebody) who habitually extolled the purported sanctity of various arbitrary chart lines while obsessively commenting like a certified lunatic on my narrative musings from 2016.
The tragedy of that unfortunate soul is that he was mostly right, only he didn’t understand why. Sentiment does matter and so do lines on charts. But they don’t matter because we can actually learn anything meaningful from them, or because we can reliably use them to accumulate more of the intersubjective reality we call “money” by trading certificates that represent ownership shares of “companies” which, like money, are just make-believe human constructs.
Rather, sentiment and lines on charts matter because some enterprising humans realized that their compatriots are, biologically speaking, just a collective of excitable apes, and that you can probably take advantage of them by programming unemotional machines to recognize certain indicators that may be associated with their emotional swings.
Only machines are capable of doing that reliably and efficiently. Why? Two reasons.
First, you, me and the people who programmed the algos are also just excitable apes. So, we can’t be trusted not to get swept up in the very same alternating euphoria and depression we’re trying to exploit.
Second, we can’t move fast enough. You need machines because they react instantaneously. When a trigger is hit, they move. The gap between that and when you see a Bloomberg red hed declaring something like: *S&P QUICKLY FALLS 0.8% is an eternity to those algos. By the time you see it, you haven’t just missed the boat, that ship has circled the globe 40 times.
Better still, when you insert those machines into market-making, they can also exploit discrepancies and inefficiencies. And while critics invariably characterize the dearth of liquidity in a pinch as some kind of “defect,” it’s anything but. In cases of outright panic, the machines effectively realize that the apes they’re gaming have totally lost their minds. So, the algos simply step away, content to watch from the sidelines to see if we’re going to regain our senses enough so that we can be reliably exploited again, or whether we’re going to start leaping off bridges.
Now, who’s ready for earnings season?