How To Determine "Trend" and Use It To Be In and Out Of The Market When It Matters Most!
Technical analysis is often the most misunderstood form of investment analysis. For most of the period between 1900 to 2000, technical analysis was thought of as, “ trying to read the tea leaves or trying to figure out the squiggly charts on a piece of paper”.
However since the 1990s and especially after the year 2000, technical analysis has become much more important in regards to a tool to being used to understand the market timing of a particular investment as well as markets.
Let's be clear, determining the exact moment of initial uptrend or downtrend is impossible...
However being able to relatively decipher when the trend is going up down or sideways, while not being easy, is extremely important.
By now most people understand that people run in patterns. People, groups, cultures and even animals have a tendency to do things in patterns. By understanding these patterns and what they look like on paper, you can get a general idea of where someone or something might go. Is it perfect? No, but it can give you a sense of direction which is unparalleled by either fundamental or global analysis.
If you go to a doctor and you are complianing of chest pain, they are likley to do an EKG. The EKG displays a pattern then the doctor recognizes theat indicates if your heart is in trouble or not. The same is true with Technical Analysis.
If you look at the picture to the upper right you can see a lot of patterns as well as drawings that are probably very confusing. However by understanding and studying these particular patterns and what they mean you can get a sense of when you should be in or out of a security or even a market altogether. Further, you can also get an idea of understanding what sector of the economy might be starting to do well or fail.
You can see at the end of 2021 and the beginning of 2022 there was a triple top pattern which indicated that the long term trend of the market going up was over. Combining this with rising inflation and the need to increase interest rates by the Federal Reserve gave a very likely clue that the market was going to go down. If somebody started to reduce their exposure in the middle or in October or November of 2021 they would have missed a continued increase in the overall market. However by identifying the triple top at the very end of 2021 and the beginning of 2022 there was a strong indicator that the upward trend of the market was over and that increasing cash we're moving all to cash would have been prudent.
In the picture to the upper right you can see noted in purple where in the middle of 2022 and the beginning of 2023 there was a double bottom that appeared in place. This signified that the chances of the market bottoming out and continuing in an upward or advancing mode is extremely likely.
As of the start of 2022 and then all the way through the beginning of August 2023, and then continuing to the end of August 2023, you might be able to see a cup and handle type of formation. While not complete this particular formation tends to indicate that there is a chance that the overall market could could continue to advance for quite some time to come. However in order for that to occur and be verified the market would have to advance from the bottom Of the handle where it is in the picture now to above that point at the beginning of August and then accelerate. This could portray a market which could advance pretty steadily for years to come. However, that indication is not clear as of the end of August 2023. The cup and handle formation could fail. The technical analysis of this pattern just creates what is more likely than unlikely and by understanding these patterns and what they represent the knowledgeable technical analyst can position a portfolio to be somewhat more aggressive or somewhat more conservative.
by utilizing all three forms of analysis, global, fundamental as well as technical we can design portfolios to have a higher degree of likelihood of weathering economic storms and taking advantage of economic opportunities
It's what helps our clients to be able to live the life that they truly desire while leaving the preservation and growth of their wealth to our expertise.