Groucho Marx made some of the wittiest remarks recorded in the 20th century. Classics like “I never forget a face, but in your case I’ll be glad to make an exception”, and “[taking pulse] either this man is dead or my watch has stopped”. We know his quotes from the movies he made. Oscar Wilde coined many a classic witticism, too. Some came from his books and plays, but others were things he said in real life. I always wondered if there was a chronicler on hand to record these things for posterity, and so being poor and witty meant marvellous lines being lost in the mists of time. How much dross might they have written down around the gems Wilde uttered. I imagined the famous line for Customs “I have nothing to declare but my genius” might have been followed by “and these rather handy phalluses from my overseas trip”, and Wilde then having to point out to the chronicler not to write down the second part.
I digress. The point is “either this economy’s dead or my watch has stopped”. We have a highly unusual economy at the moment. The stock market has risen only on the lie of QE. We are only seeing economic growth because of the lies about inflation being so low, which is not the reality for most people, and is based on constantly moving the goalposts of the constituents of those inflation figures. Employment is at a high level because of part-time and zero hours contracts. It is almost impossible to find a decent benchmark for any economic data.
Companies are no better. Dividends are being maintained by borrowing at still (but not permanently) low interest rates. There are so many items floating around off-balance sheet, like defined benefits pension deficits, that company value, as in the case of Sainsbury’s, may be lower than that liability. It seems that the whole of society has joined the politicians in believing, perpetuating and living all the lies about the Emperor’s New Clothes – in this case the economy, society, political correctness, so-called democracy, and so on.
We, as traders and investors, have to be like the Borg in Star Trek, constantly adapting to fight the nonsense that drives the markets. Luckily, Technical Analysis is a great way to cut through the crap. If we let charts tell us what they’re telling us, and not try to shoehorn them into some preconceived desire as to how things should be, then we can trade successfully. Economics is in some ways a crazy science. There are so many variables that it often seems it would just be easier to throw darts to determine what’s happening, as detailed analysis will often lead to the wrong answers.
Charts are a barometer of human sentiment. That’s why they work. And human behaviour is predictable, and doesn’t broadly change, even over very long periods of time. Just read the Greek and Roman plays and you’ll recognise all the characters. Charts will often predict shocks far better than economists. Economists are great at predicting certain things, but rarely shocks, which are not, as you might imagine, at all unpredictable. And of course you have to consider who their paymasters are too: maybe they don’t want to predict shocks. Maybe they keep the shocks to themselves and make bucket loads of cash by not telling everyone.
Unlike an investment house we cannot afford to have a team of analysts, and disparate reports from various sources will not be homogenous enough to discern reliable information. But we don’t need teams of analysts. We just need charts and the willingness to invest some time and effort interpreting them. Don’t over-complicate things. News is most often noise to a private investor. News is frequently intended to persuade us to act in a certain way, like advertising, which in many cases is precisely what it is. Company results, for instance. Build up your resistance to behaving predictably and you’ll make more money. We have to be different to succeed because we don’t have clout. Try to think, not so much “what would a good trader do?”, but “what wouldn’t they do?”