Admittedly, I’m not a guy who’s ever been enamored with technical analysis.
It’s my long-standing contention that reliably predicting stock prices based on lines isn’t possible. And please, spare me any grief about the “lines” characterization. It is about lines. Sure, those lines represent momentum, trends and so on, and maybe some divination is possible, but to make a project of it — well, I fear that’s an endeavor fraught with peril.
However, I also make no secret of my disdain for stock forecasting in general, which is to say stock forecasting based on the fundamentals. That too is fraught with peril and the peril typically involves underestimating the power of momentum and sentiment, the very dynamics technical analysis tries to capture.
I guess you could say my thinking has evolved over the years. I’m not as averse to technical analysis as I was two decades ago, although I do insist it emanates from a bank. That’s not because I hold banks in especially high regard, it’s because I’m wary (to put it politely) of non-bank “analysts” peddling technical analysis to the masses on the internet. There are a lot of such folks. So, if you’re going to pitch me on a technical bull (or bear) case, do me a favor and be from a bank.
With all of that in mind, Piper Sandler on Monday put out a technical update that was worth mentioning, if only because other people mentioned it. Someone wrote in and said it showed up on CNBC. (I wouldn’t know. You couldn’t pay me to watch CNBC.)
Piper’s CMTs lifted their year-end S&P target (they call it an “objective”) to 4,825 from 4,625. “Expanding breadth is at its best levels in over a year and will continue to underpin equity markets,” Craig Johnson (who’s also a CFA) and Scott Smith wrote.
They went on to cite room for sentiment to improve (it’s not at “bullish extremes” yet), the high beat rate this reporting season (not exactly a technical indicator, but it’ll work) and an increase in the percentage of stocks hitting new highs.
Frankly, I have no reason to suggest their analysis is any less trenchant than what comes out of the Street’s “best” top-down, fundamental strategists. Everyone’s just guessing and in the 2020s, the phrase “your guess is as good as anyone’s” can be taken 100% literally. So, why not Craig and Scott?
Later, the two noted that if you look back at nearly a century of monthly returns, the outlook for equities following five months of gains is mixed, but ultimately constructive if you have a little patience. “There’s a high probability the SPX will retreat in the short-term, but eventually resume” its ascent in the “intermediate- to long-term,” they said.
Bottom line: Piper’s technical analysts are “bullish over the intermediate-term,” and expect the “bull market off the October lows to continue.” They also highlighted the potential for “near-term backing and filling.” I don’t know if that’s a technical technical term (two technicals) or whether they meant to say “backfilling,” but either way, it’s supposed to be “a healthy rotation among sectors” as the dog days of summer drag on.
As you Mr H I have never been convinced technical analysis is a good predictor, but over shorter time periods it can help to identify entry and exit points for my trades.
Good topic. So, there is technical- which is part oftrend following/momentum and calling turns. There is relative value/ return to the mean. There is volatility which tells you what active imtermediate term managers will be forced to do. There is contrarian investing- which looks at commitment of traders and net open interest which tells you how people are actually positioned versus what they proclaim. I think one needs to be good at all of the above and well informed. Why? because you need to know who’s doing what. Then, you have to make up your own mind. Walter Deemer says Today’s price is tomorrow’s headline. He also says when it’s time to buy, you won’t want to. Boaz Weinstein says blackjack is the game to play because you will only be right about 50 1/2 % of the time to be exceptional, so it teaches you what to do when you are wrong. The turtles were taught to expect to be wrong 60% of the time. Charlie Munger says there is risk, uncertainty and ignorance. Being godd at this is a bitch….