Headline risks are everywhere, much like screaming babies getting their picture taken with Santa. This week’s headline risk focuses on CNBC and their ongoing mission to lead investors astray, writes Landon Whaley Wednesday. He's presenting at MoneyShow Orlando Feb. 9.
As an investor you must keep your head on a swivel and human reactions in check so that you’re not drawn into well-written narratives that promise to unveil the mystery of financial markets.
It’s not our intention to pick on these guys … but man, do they make it easy.
This week we have a pair of headline risks that bookend 2018 nicely and highlight just how nimbly the media jumps from narrative to narrative.
Let’s start with a January 24 headline, which read “The stock market is off to its best start in 31 years and that bodes well for the rest of 2018.”
The author’s reasoning for why January bullishness is good for the following eleven months was:
“When the S&P 500 posts a return of at least 5% by Jan. 23, the index's median return for the rest of the year has been 11.6%, according to Bespoke Investment Group.”
“‘The history is pretty good for years where the first week starts off strong and the first month starts off strong,’ said Art Hogan, chief market strategist at B. Riley FBR.”
Folks, this type of “averaging of historic events” analysis is pure garbage and carries no statistical validity.
The S&P 500 (SPX) peaked two days after this article was released and proceeded to trade below the January 24 closing price for seven months. It is currently down -2.4% for the year.
Bode well? I think not.
Fast forward eleven months, and after a -10.9% correction, CNBC declares “ S&P 500 teeters on edge of a 'death cross,' and one key level could determine its next move.”
Apparently, a “death cross” occurs when the 50-day moving average crosses below the 200-day moving average.
Let’s get one thing straight: it’s not the name you should take issue with, because you could call it the “beautiful cross of abundance” and it still wouldn’t matter.
If you’re using moving averages as a core component in your investing process, then you’ve lost before you’ve even begun. Moving averages tell you diddly about the current quantitative characteristics of a market, and they sure as hell don’t have any predictive value.
Beyond the fact that this article is making a moving average-based argument, it turns out there isn’t just “one key level” but three.
Matt Maley, equity strategist at Miller Tabak, is “watching” 2640 on the S&P 500, but in addition, he thinks "… the more important level is even down at the 2600 level, 2580 to 2600.”
Holy crap, Matt, pick a level, any level! It doesn’t matter which one you pick; they are all equally un-“key” because they’re based on a flawed quantitative tool and Wall Street’s obsession with round numbers.
Wouldn’t you rather have Alpine (2738.71) and Abyss (2607.16) lines for the S&P 500 calculated utilizing fractal geometry and Chaos Theory, which accounts for the nonlinear reality of financial markets? But I digress …
It’s not about death crosses or how the S&P trades in the first three weeks of the year—it’s about the prevailing Fundamental Gravity and the damn data! Both the S&P 500’s upside to start 2018 and the recent downside that brought the dreaded “death cross” into play are effects of the prevailing U.S. Fundamental Gravity. Period.
The headline risk bottom line is that you should never, ever use media narratives to drive your investing decisions. To be a consistently successful investor you must remain vigilantly data dependent (not narrative dependent), process driven (to minimize your humanness) and risk conscious (not profit focused).
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Watch Landon Whaley’s 3 Ideas for Investing and the meaning of coddiwomple in a short video here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 6:42.
Watch Landon Whaley discuss When Markets Cycle in a short video here.
Landon Whaley: We have a generation of investors and asset managers who know only one market. The reality is markets and economies cycle and catch people off guard.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 5:51.
Landon Whaley interviews Adrian Manz: How I approach stocks here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 7:48.
Landon Whaley interviews trader Jackie Ann Patterson: How I got started trading and how I approach it with my Truth about ETF Rotation here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 6:14.
Landon Whaley interviews John Carter: How I started trading here.
Recorded: MoneyShow Dallas Oct. 5, 2018.
Duration: 5:37.
