Mr. Market Moving Past Winter

Q1 2019 transition to Q2 2019 has promise

This market may be moving from the deep frost and doldrums of Q4 2018 - with the swift rebounding of prices back to the heights of Q3 2018. The reasons “why” this has happened will be apparent in retrospect and they are not instructive for the purposes of systematic risk taking and price following. For the moment, we can observe the return of more “long” ideas than “short” ideas for the first time since Q3 2018. A new “master list” of trend following ideas can be created to track over the coming months but everyone seems primed for a pull-back, based on my read of other participants.

Time for charts and a simplified list of potential ideas. A word of caution. Anyone who wishes to trade off this list alone without fitting it to one’s internal process, mindset, circumstances and level of skill will only expose themselves to more character building experiences, to put it kindly.

Focus on your risk management, your "2019 lists” (everyone has a wish list), your routine and ritual (BTW, If you don’t have a routine in place, please spend most of your time designing one you can follow consistently from day to day, week to week and so on. And if you do have such a process but don’t follow it, realize then that is your actual “system”) and then you can actually put these “free” ideas to work. (Think “Reminiscences of a Stock Operator” and the lesson about how people “love tips” on ideas, or on what someone else is doing, as if that is what makes speculation work.)

Okay, the sermon is over, let’s review some charts and notes. First some charts and then “list” of sorts, sorted in order of trend “age”. The one thing emphasized is ‘risk/sh’ or risk per share. All of this is built on weekly price action observation. You can use a vast array of price following approaches and you will see the same ideas or at least substantial overlap. There is no mean trick to be captivated by noticing leaders at the top of the stairs and failures at the bottom of the stairs.

So many charts, so just a few to start with, all selected randomly. Many well known market “leaders” are already running, and have been shared in the past and on social media.

There are many more uptrending charts which you can generate from the list shared in this update. And now for a few charts going “down the staircase” as a reminder that trends run in both directions. The list for “avoid"/”sell”/”short” ideas is shrinking.

Things can run along for much longer than anticipated or hoped for (or wished against). This does not detract from other investment processes but it can be a humbling reminder of the limitations of our ability to evaluate value and outcomes.

David Einhorn, a well-known value investor, recently reported how difficult 2018 was for his hedge fund (he had similar losses several years ago in housing related investments and he had to confront the reality that being able to assess the health of a grove of trees would offer no protection if the forest surrounding them was on fire).

That said, there is also a price to be paid for “chasing” price action - one could be led off a cliff, sell out at what would later turn out to be turning point (i.e. top or bottom).

There are trade-offs regardless of what investment process one ends up using. The real job is to find out the “cost of business” is for the investment process you have chosen or have chosen by default (i.e. what your trading history reveals that you’re actually following). The “answer” for each of you is to figure out the cost of your approach, and see if it is affordable as part of a sustained investment/trading style. If it’s not then you’re either going to go bust or should hand over your funds to another practitioner.

And now for a few quick charts on the S&P 500, Euro and the Aussie. More to come but I wanted to take a look to see where we are as of this week. The US Dollar is robust, US equities have had a fast bounce, emerging markets and emerging markets tech as well. Q2 2019 sets the tone. Many “unicorns” have filed to go public, signaling that we may be approaching the final innings of a long-running epic game.

(UPDATE: “Master List” posted has been removed and will be updated in next post.)