12/1/22

Good afternoon friends,

I compose this email 40 days after my last without having to say some version of, ’I know I said to get more aggressive…just give it more time.’ This time the market obliged. The Dow Jones is up 11.3% since. 

My belief that the market was presenting great opportunity and due for a bounce was mainly due to a number of fundamental drivers. When analyzing the stock market or an individual stock there are two different types of analysis. Fundamental and technical. 

Fundamental analysis is what most people are familiar with. It is the study of a company based on its business outlook, new products/services/contracts, management, financial statements, overall economic environment, etc. The same can be done for the market as a whole. 

Alas, today technical analysis decided to join the fight! Technical analysis is the study of charts and indicators.  Someone using solely technical analysis is making buy/sell decisions based on the chart and nothing else; regardless, if it's a barrel of oil, a crypto currency, a stock, or the entire stock market.

Sales pitch - RollingWave Capital utilizes both. We determine what to buy and sell based on fundamentals and when to buy and sell based on technicals. Which is a very unique approach in an industry seemingly always looking for short cuts.

Reading a chart however is more art than science. Two people can look at the same chart and see two totally different things. Well, to be more clear, they may see two totally different futures. The information contained on a chart is history after all and is immutable. The future is unknown…to everyone. Despite how often they are on TV, how many books they have read or written, where they went to school, etc. Everyone is guessing. 

But sometimes something shows up on a chart that is undeniable. Today was that day. A picture is worth a thousand words, so please see the chart below.

Today was the first day the market opened and closed above the trend line that has kept the previous rally attempts hostage. A deviation from past behavior should result in a different outcome. 

Is this the all clear? No. There is no such thing. There is always reason to be skeptical (economic uncertainty, political tensions, foreign unrest, etc.) But as long as we stay above the trend line that was an obvious headwind, it should bring more buyers to the market. When buying is greater than selling…things go up.

In my opinion, news will always trump technicals. A large enough negative development (i.e. up tick in inflation, escalation in Ukraine) would make the technical breakout meaningless. But for now, from my point of view, the path of least resistance is up.

I hope everyone’s holiday season is off to an incredible start and I hope you all have an amazing time with family and friends over the coming weeks!

JC