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Two opposing technical arguments on market direction


Last weekend I attended the Technical Securities Analysts Association (TSAA) of San Francisco annual conference, hosted by talented money managers that I’ve followed and befriended for the last 10 years. The first presenter, Craig Johnson, Chief Market Technician for Piper Jaffray, made a case for slowing economic growth and an upcoming correction in both stocks and bonds. A later presentation by Greg Schnell, CMT, MFTA suggested another story of continued growth and increasing momentum in stocks. Hearing the case from two opposing, famous technicians allows for superior portfolio construction as we now have a better understanding of the potential risks.

There are two major philosophies of investment management: fundamental and technical analysis. The former takes the approach of understanding the underlying economic argument of the company worth investing in and the economy as a whole, while the latter limits the argument to the marketplace, behavioral finance, and the relationship between buyers and sellers. Both serve a purpose in money management and should be considered seriously. Only a technician can suggest the timing of an investment which can help us decide when to buy or sell a certain investment.

Johnson notes that only ⅓ of stocks are making new highs and is the smokescreen for the lack of market participation and therefore a case for a coming correction. His year-end price target for the S&P 500 is about 8% less than it is today. He said in his August research report, The Informed Investor, “The pullback from record highs earlier this summer created a wave of technical damage across most major U.S. and global benchmarks.” 

Schnell has identified leading stocks in various sectors of the market that are poised to go higher per momentum and other technical indicators. Without an economic argument, he has made a case for higher prices in copper, gold, steel, industrials, U.S. small and large stocks due to their current technical acceleration.

Markets change all the time and it’s prudent to be flexible with your investments which may allow for making adjustments over time. Caution is suggested in the intermediate term as the recent oil supply crux, risk of an Iran confrontation, and already slowing global growth remain at issue. However, on Wednesday, Chairman Jay Powell of the Federal Reserve already cut rates and suggested stronger action should it be necessary. This kind of central bank intervention suggests that not all is what it appears with markets and therefore it may be less crucial to take immediate action.

At Eureka Wealth Management, I keep my clients informed of the latest in investment thinking and help make adjustments to portfolios when needed. I also do financial planning and help align investments with your time horizon and risk tolerance. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.

Sources:

Craig Johnson (link) is Chief Market Technician for Piper Jaffray

Greg Schnell (link) is the author of StockCharts for Dummies

TSAA website

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Eureka Wealth Management is a registered investment adviser in the State of California. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment advisory services. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.