In a recent article referencing technical analysis and its impact on market psychology, the Wall Street Journal this week tipped its hat to Robert Edwards and John Magee, two renowned market technicians who have long touted the predictive power of charts and statistical indicators. For the WSJ, which most commonly speaks to the most prevalent investor audience, the fundamentalist, this is noteworthy. After all, fundamental analysis is what is taught in nearly every business school while technical analysis, on the other hand, had for years been largely stigmatized by academics and relegated to the witch doctors and tea leaf readers. But in the words of Bob Dylan, the times they are a-changin’. Well, in regards to investment analysis, times have actually been changing for several years now.
Investopedia says “Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. Technical analysis differs from fundamental analysis in that the stock’s price and volume are the only inputs.” Although both methods of investment analysis are used to help predict future trends, the former relies on macroeconomic data and individual company financial statements whereas the latter has been referred to as chartology, and math modeling which focuses on price action relative to key moving averages, support/resistance levels, supply/demand and volatility to list a few common parameters.. While Goldman Sachs and a lot of other large global investment banks have stacked their talent decks for decades with Ivy League MBAs who are pros at pouring over balance sheets and income statements, these same Wall Street firms have more recently added market technicians, mathematicians and computer engineers. . Adding technical analysis into the trading and investment equation provides a critically important balance. We’ve often said that fundamental analysis is used to determine “what” to buy and sell; technical analysis helps decide “when”. It’s relatively easy to say, “buy AAPL”, “buy AMZN”, or “sell the Russell 2000”. But when is the optimal time to do so to maximize your profit potential?
Taking advantage of pullbacks to key support levels, paying close attention to increasing or decreasing volume, and, as the WSJ highlighted, having keen awareness of psychological levels in the overall indexes are just a few historically-proven ways to increase your overall returns. So as we (and now some astute WSJ readers) watch the S&P 500 bounce off of the psychological 3000-level barrier (or to us technicians, support), which, by the way, happens to be right at the 200-day moving average (no coincidence), our Forte (ETF) and Forte Futures strategies are systematically adjusting to these levels to produce above-average returns.
Forte Strategy Update
We executed 9 trades using the Nasdaq 3X leveraged ETF (TQQQ) and the TVIX ETF (2X leveraged VIX futures) for a net loss of 1.7% compared to a loss of 2.9% by the S&P 500. Our YTD net results so far equal a 3.4% loss compared to a 6.9% YTD loss for the S&P 500. Our YTD max drawdown is 9.5% compared to 33.9% for the SP500.
More details about our trading activity can be found by registering on the Collective2 website and searching for Forte Strategy. A running list of these email blogs and general information about Maestro Capital Research can be found at maestrocapitalresearch.com.