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Market On Close, Tuesday 27 May

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Market On Close, Tuesday 27 May
Stonks To The Moon! (Image Source - ChatGPT)

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.

Another Hated Rally

by Alex King, CEO, Cestrian Capital Research, Inc

Equities dumped Friday and mooned today. The market continues to be rather volatile but it remains operating within fairly normal parameters. If you spend your time trying to understand where the market may move next based on the news, policy progress through the Executive and/or Legislative Branch, X posts from members of the Executive Branch, or any other external input, good luck. Perhaps you can be successful doing this, and if you are, please tell the rest of the market how to do it, because most cannot! In my personal experience it remains best to ignore all external drivers of price. That doesn’t mean that such things have no impact on price - of course they do - it’s that the price reaction to external stimulus almost always takes place within a defined range - and that range is defined primarily by the most recent price range. Or in other words, if you consider the market to be a closed system wherein price movements can be best predicted by reference to prior price movements, you will already have a major edge on most market participants.

In our work at Cestrian we believe price can best be predicted - ie. trading and investing decisions made - by a combination of three methods, being:

  • Fundamental analysis. Understanding something of the reality of the economic and political world within which the market sits, and something of the economic performance of the companies which issue market-significant securities, is a useful backdrop to more real-time analysis.
  • Technical analysis. Often viewed as voodoo or, my personal favorite, “that’s just drawing any old lines”, securities charts are a rudimentary but surprisingly effective tool with which to identify prior price patterns and, therefore, to try to predict future price patterns.
  • Quantitative analysis. No longer requiring supercomputer-level capex budgets, quantitative AI / machine learning investment research tools are now available at low cost, thanks to Moore’s Law. (And to the breakup of AT&T in 1984. But that’s another story). Machines can make mistakes, but they don’t make mistakes by over-thinking something, worrying they are wrong, or thinking about the optics vs. the signal of what it is they conclude. For this reason I consider properly-constructed quantitative analysis, and the signals it produces, to be an essential part of any serious investor’s toolkit. If you think this is bunk, if you think it’s nonsense, if you think the machine just does what its creator tells it? Then I believe you will be left behind. Today, AI may be in its infancy but those who use its abilities already have a fundamental edge on those who believe it to be a fad or a fashion. AI has yet to have its Netscape Moment, in my opinion, but it is coming; we should all be ready. Ignoring AI will in my strong opinion prove as major an error as ignoring the PC revolution in the 1980s or the Internet revolution in the 1990s.

And with that, let’s get to work. But please do take a moment to watch this.

How To Use Our Quantitative Signal Services

Please take a moment to watch our video covering how we think fundamental, technical, and quantitative analysis can be best used for investing and trading decisions.

So now for those any-old-lines.