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Coping with Analysis in the Age of QE Coping with Analysis in the Age of QE Michael Kahn, CMT Michael Kahn Research LLC November 2012.

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Presentation on theme: "Coping with Analysis in the Age of QE Coping with Analysis in the Age of QE Michael Kahn, CMT Michael Kahn Research LLC November 2012."— Presentation transcript:

1 Coping with Analysis in the Age of QE Coping with Analysis in the Age of QE Michael Kahn, CMT Michael Kahn Research LLC November 2012

2 Save us Obi Ben Bernanke

3 Ben Lightyear. QE to infinity and beyond!

4 Have another shot of Bernanke juice.

5 Ben Bernanke as a child

6 Who am I? Chartered Market Technician (CMT) trained and certified in market analysis trained and certified in market analysis late addition – not a numbers or systems guy late addition – not a numbers or systems guy Columnist – Barron's Online Newsletter Editor – Quick Takes Pro Former charting software designer Social Media Marketing wannabe …and beaten up enough by the markets

7 What do I do for clients? Help investors assess risk and reward. no crystal ball no tea leaves no chicken entrails

8 What is Technical Analysis? A method of evaluating securities by analyzing statistics generated by market activity. -- from the Market Technicians Association website

9 What is Fundamental Analysis? A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. -- from the CFA Institute website (and Investopedia)

10 What do they have in common? Neither one can handle conditions that cause the market to be restricted, manipulated and otherwise not free.

11 Cliché time It is time to: Think outside the box Think outside the box Bend but do not break Bend but do not break See the forest for the trees See the forest for the trees Go with the flow Go with the flow -- Are you getting my drift?

12 Key Points My bias – I use charts and believe the market knows more than I do. My bias – I use charts and believe the market knows more than I do. No matter what happens, people tend to do similar things when faced with similar situations. No matter what happens, people tend to do similar things when faced with similar situations. This is not brain surgery (with apologies to all the quants out there) This is not brain surgery (with apologies to all the quants out there)

13 People Peoples behavior is the basis for chart patterns. Peoples behavior is the basis for chart patterns. Interpreting those patterns in 2007 was different than it was in 1997. Interpreting those patterns in 2007 was different than it was in 1997. Interpreting those patterns in 2012 is different than it was in 2007 Interpreting those patterns in 2012 is different than it was in 2007

14 The Big Question Does market analysis work anymore?

15 The Big Question Does market analysis work anymore? Yes! (mostly)

16 Adapt An analogy: Walls still hold up a roof. Walls still hold up a roof. Walls are now made of stone, not wood. Walls are now made of stone, not wood. Regular hammers and nails wont work. Regular hammers and nails wont work. …….Try masonry nails. Maybe glue. …….Try masonry nails. Maybe glue. The concept is the same. The implementation is different.

17 What is QE? Quantitative easing (from Wikipedia) An unconventional monetary policy used by central banks to stimulate the national economy…. A central bank implements quantitative easing by buying financial assets from commercial banks and other private institutions with newly created money in order to inject … … … … … … … … … … … … … … … ZZZZzzzzz……..

18 What is QE? I dont care I dont care

19 What is QE? I dont care for the dirty details and logic behind it. I dont care for the dirty details and logic behind it. All I need to know is that it is a mechanism to provide a ton of cash into the market. All I need to know is that it is a mechanism to provide a ton of cash into the market.

20 What is QE? I dont care for the dirty details and logic behind it. I dont care for the dirty details and logic behind it. All I need to know is that it is a mechanism to provide a ton of cash into the market. All I need to know is that it is a mechanism to provide a ton of cash into the market. And where there is liquidity, there are rising stock prices. And where there is liquidity, there are rising stock prices.

21 Proof * Quantitative Easing * Long-Term Refinancing Operation China stimulus too! various shenanigans and jawboning ECB LTRO announced

22 More recent proof

23

24

25

26 So, how do we cope?

27 A little more gut Did not follow through

28 AAII survey 70% bears Sentiment

29 Try a little more bottom up

30 Who was in crisis? Financials.. Now suddenly outperforming.

31 Ratios

32 Ratios

33 Ratios

34 Leadership

35 Stuff that doesnt work

36 Moving average crossovers

37 Stuff that doesnt work

38 Volume

39 Stuff that doesnt work Volume Well, it works in some applications

40 Stuff that doesnt work Volume Well, it works in some applications

41 Stuff that doesnt work Well, it works in some applications

42 Stuff that doesnt work

43 Bonds

44 Stuff that doesnt work Bonds VIX

45 Case Study

46

47 Now you are messing with me!

48 Opportunities are not cut and dry

49 If you dont see anything, its not there.

50 Keeping it useful The focus is on action, not prediction. The focus is on action, not prediction. Id rather be right than President. - Sen. Barry Goldwater

51 Summary New normal (groan) New normal (groan) Sentiment plays a bigger role Sentiment plays a bigger role Bernanke Put (trend is up)… Bernanke Put (trend is up)… …or is it?

52 Summary Diminishing returns from QE Diminishing returns from QE We will emerge from this market- meddling but with slightly different tools of the trade. We will emerge from this market- meddling but with slightly different tools of the trade. Human behavior will not change Human behavior will not change

53 The real reason we do this: To make the buy, sell or hold decision. Not to predict the future

54 Dont - Analysis Paralysis (groan) - Get hung up on precision Do – K.I.S.S. – Spirit of the analysis, not the letter of the law (sorry again, quants)

55 Technical analysis is a windsock, not a crystal ball. - Carl Swenlin

56 Quick Takes Prowww.QuickTakesPro.com www.QuickTakesPro.com Getting Technicalwww.Barrons.com www.Barrons.com Trading Strategieswww.MarketWatch.com www.MarketWatch.com Books (www.QuickTakesPro.com/education.html) www.QuickTakesPro.com Beginners Guide to Charting Financial Markets Technical Analysis: Plain and Simple – 3 nd edition Real World Technical Analysis …plus my favorites from other authors

57 Quick Takes Pro Free Chart of the Day No obligation………No spam………. Sign up at the website www.QuickTakesPro.com www.QuickTakesPro.com You can also dive right into a free trial of the daily Quick Takes Pro newsletter. Sign up at the website.


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