I can only infer that things are being done behind the scenes by the results. It's pretty suspicious when every third year since 1939 has a strong market. This year though, there is the Quantitative Easing, which is certainly contributing to a strong stock market and better corporate earnings.
Behind the scenes
Tenacious
4/24/2011 3:30:03 PM
Fred, how much manipulation occurs behind the scenes at the federal level to push the market in this direction? Has there historically been direct or indirect measures taken to make sure the third year leaves everyone feeling pretty flush? Or is it just free market dynamics?
Re: Re : The Market Follows a Pattern... Even This Year
mInvestor
4/22/2011 6:41:21 PM
Thank Fred and Value Hiker for this excellent Q & A. It helps me a lot to better understand these two methods. I myself was more leaning to fundmental analysis. Only recently I started to pay more attention to technical analysis. Yes, Fred, you are right, there are many people/benavior factors we need to consider for our investment.
I think most individual investers are not comfortable to use technical analysis because they are not sure if they have enoguh time and energy to di into those math and calculation. Can you suggest a simple way for an normal individual investor to start with?
Re: Re : The Market Follows a Pattern... Even This Year
Value Hiker
4/21/2011 11:34:21 PM
I think you made your point, Fred. I agree that technical analysis can help you see the emerging trend. That may give me some insight as a long term investor.
Re: Re : The Market Follows a Pattern... Even This Year
Fred Goodman
4/21/2011 3:05:48 PM
Technical analysis is only as complicated as one wishes to make it, and the distinction between technical and fundamental analysis is much less of a distinction than many people make it.
Here's an example: Few would argue that the Case/Shiller 20-city composite index of home prices across the United States is a fundamental rather than a techical tool for getting a sense of where home prices are going. And as you see below, they fell very sharply since their peak in 2006, but have staged a bit of a recovery since early 2009.
However, as soon as I add the orange line it becomes clear that prices have been falling since last fall and have made a new low that is just slightly above the low reached in 2009. The line is technical analysis even though it has been applied to fundamental measurments.
Everytime we look at a chart we are making both fundamental and technical inferences about where the data have been and the probablity that the trend will continue or reverse. You can't separate the two.
Re: Re : The Market Follows a Pattern... Even This Year
Value Hiker
4/21/2011 1:39:13 PM
Fred:
Thanks a lot for sharing your thought about market timing & technical analysis. I agree that different people has different characters. Some will feel comfortable with one tool, while others feel comfortable with other tool. Buffett succeeded in Value investing, while Soros did well in trading.
After years of experience, I feel comfortable with fundamental analysis, but I think there shall be some good things in technical analysis, especially in short term predication. It is not related to the business fundamental, but it has some relations to human behavior.
Full Technical Analysis may be too complicated for ordinary investors to master. If you can share some simple, straight tricks with us, it will be much appreciated
Re: What a difference a year makes...
icebreaker1975
4/21/2011 11:12:16 AM
I never would have put that together...the synching of the third presidential year with the market...how clever!
Re: Re : The Market Follows a Pattern... Even This Year
Fred Goodman
4/21/2011 3:54:46 AM
An excellent question, and one that is worthy of a full post, which I will consider doing in the coming weeks. But in brief, it has been said that money management is a science, while investing is an art.
In art there are many useful tools, but not all of them are useful in every project. Investing requires that one pay attention to fundamental economic indicators sometimes, to emotions at other times -- like after the earthquake and tsunami -- and to repeated behavorial patterns at others.
In still other situations it is appropriate to consider the time of the year and patterns related to the fact that investors are human and usually go away in the summer and return after Labor Day.
It has also been observed that people hate to take losses and will sell a stock if it returns to a previous level after a big drop, because they have finally become even. These frequent and repeated behaviors have been studied by traders for hundreds of years, and they still work is some situations, even though they fail in others.
So let's accept as fact that there are many fundamental, behavioral and technical factors that influence the market, and let's try to apply them when they seem to fit. You wouldn't tell an painter that you "are not a fan of red," so why tell an investor to ignore any of the tools that he or she finds useful.
Just remember that there are no sure things in investing, and that is why the stop loss and the price target were invented. Bob Brinker got into difficulty because he didn't know when to accept the fact that he was wrong.
Re: Re : The Market Follows a Pattern... Even This Year
Value Hiker
4/21/2011 2:34:54 AM
Fred:
I am not a big fan of technical analysis. Do you really think stock market movement has anything to do with third presidential year, or middle of year, etc. I don't mind to make money by timing the market, just don't know how.
I followed Bob Brinker years ago, but lost my confidence in technical analysis and market timing after his 2007 fiasco. I still remember his newsletter kept saying buy, buy, until the disaster hit, and market lost half of its value.
There are many things I would not sell. For example, I personally hold positions in the Merk Hard Currency Fund, Matthews Asian Growth, Matthews Asian Dividend, SPDR Gold Trust, and Market Vectors Agribusiness ETF that I would not sell unless they hit my stops, and I might even add to the positions while exiting domestic stocks and ETFs.
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