The two most practiced schools of investment management are fundamental analysis and technical analysis. Mostly, I practice fundamental analysis, which means I look at the company, how its stock trades relative to the company, how the stock is rated by full-time analysts, how it is impacted by the business cycle, etc.
Sometimes, I will take a look at technical analysis. That is the type of analysis that uses stock prices to identify meaningful patterns on a graph. While it is interesting, it demonstrates meaningless precision. To me, I consider it voodoo analysis. However, when both schools suggest the same thing, it is worth paying attention.
Take a look at this technical view of the stock market:
On an inflation-adjusted basis, the Dow is not even close to the red resistance line, which means it will probably continue going up. When technical analysis confirms what I study in fundamental analysis, I feel pretty confident indeed.
That doesn't mean there won't be corrections. There was a 3% correction in April. And, don't forget, two out of every three years experience a correction of 10% or more. Corrections are routine and actually good for the stock market. Long term, I remain much more concerned about a "heart attack" in the derivatives market than the business cycle. So, let's just enjoy the short term!
That doesn't mean there won't be corrections. There was a 3% correction in April. And, don't forget, two out of every three years experience a correction of 10% or more. Corrections are routine and actually good for the stock market. Long term, I remain much more concerned about a "heart attack" in the derivatives market than the business cycle. So, let's just enjoy the short term!
