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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. Save us Obi Ben Bernanke. Ben Lightyear. QE to infinity and beyond!. Have another shot of Bernanke juice. Ben Bernanke as a child. Who am I?. Chartered Market Technician (CMT)

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Coping with Analysis in the Age of QE

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  1. 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 • 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 • Bend but do not break • See the forest for the trees • 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. • 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)

  13. People • People’s behavior is the basis for chart patterns. • Interpreting those patterns in 2007 was different than it was in 1997. • 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 are now made of stone, not wood. • Regular hammers and nails won’t work. …….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 don’t care

  19. What is QE? • I don’t 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.

  20. What is QE? • I don’t 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. • And where there is liquidity, there are rising stock prices.

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

  22. More recent proof

  23. More recent proof

  24. More recent proof

  25. More recent proof

  26. So, how do we cope?

  27. A little more gut Did not follow through

  28. Sentiment AAII survey 70% bears

  29. Try a little more bottom up

  30. Try a little more bottom up Who was in crisis? Financials.. Now suddenly outperforming.

  31. Ratios

  32. Ratios

  33. Ratios

  34. Leadership

  35. Stuff that doesn’t work

  36. Stuff that doesn’t work Moving average crossovers

  37. Stuff that doesn’t work

  38. Stuff that doesn’t work Volume

  39. Stuff that doesn’t work Well, it works in some applications Volume

  40. Stuff that doesn’t work Well, it works in some applications Volume

  41. Stuff that doesn’t work Well, it works in some applications

  42. Stuff that doesn’t work

  43. Stuff that doesn’t work Bonds

  44. Stuff that doesn’t work VIX Bonds

  45. Case Study

  46. Case Study

  47. Now you are messing with me!

  48. Opportunities are not cut and dry

  49. If you don’t see anything, it’s not there.

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

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