Listen to the Pundits or the Markets?

Not a bad first half of 2014 with the SPX 500 being the big winner, up a solid 6%, steady every month and with the old adage of a down January working against it, seemed to defy all the naysayers (remember hearing that old saw, 'as January goes so goes the rest of the year'?).  With half a year to go there is certainly time see markets make their next move.  But even the 'lowly' Russell 2K was up in the first half, which seemed to be the punching bag of market performance this year after robust 2013.  The small cap index was higher by 3% or so after getting hammered 10% in a Spring sell off.  

The Nasdaq was higher as well, an impressive 5.5% following the strong performance in 2013.  The tech-heavy index followed the Russell 2K with a Spring Swoon but came back strong to finish at multi year highs.  In fact, the index is only 15.6% away from its all time highs reach in 2000.  Not many thought it would get there in this lifetime, but back in Jan 2013 Jim Cramer and I talked about it happening at some point in the near future.

But wait a minute:  the SPX was up 30% in 2013, and all I heard was stocks MUST correct and come down in price.  With January's strong drop those calling for a big correction in 2014 were feeling good about their predictions - or so they thought.  Stocks rebounded hard and have simply just extended the bull run that has been ongoing for the better part of five years.  Oh, there have been interruptions but look at any longer term chart and the trend is quite clear.

With markets having made such a big move over a long period of time the talk is there has to be a correction any day now, something that will give everyone better prices to enter.  That is what we are hearing everyday, right?  There is NO ONE who can tell the market what it should do and boast about their accuracy, at least on a consistent basis.  Everyone gets lucky making a call once in awhile, but is that what we should rely on to trade of invest?  Further, that is not how markets work, is it?  Markets tend to disappoint the entire crowd and at some point belief sets in.  Why such disappointment?  Because the crowd follows in late to the party, a belief that past performance is indicative of the future.

As a technical/charts person I do pay attention to the past.  A chart is set of footprints that show established patterns and trends that can be followed into the future.  The methodology is far from perfect but a far better method than just listening to the crowd of analysts or pundits telling us what we should do.  And there in lies the dilemma:  Who is right, the expert analysts with their predictions or the markets?  I think the answer is obvious, but just in case there was doubt, I am currently reading the fantastic new book titled Clash of the Financial Pundits:  How the Media Influences your Investment Decisions for Better or Worse by Joshua Brown and Jeff Macke, and within there is a chapter about legendary futurist Harry Dent Jr, who made a couple of fantastic calls in the late 90's (note:  I read his excellent book 'The Roaring 2000's' and it was here that Harry nailed some pivotal moments and bottoms in the markets). 

Everyone jumped on board to drink his kool-aid and ever since his bold calls have been awful (and that is being kind, Josh and Jeff called them much worse).   He's left his followers to wonder what happened as his predictions of doom have been left unfulfilled.  The market trumped his analysis - not once, not twice but three times (so far)!  To be fair, Mr Dent probably never factored in the power of the Fed and other central banks who can control the money supply and market action.   Meanwhile, the markets do their thing and for those with an open mind, free from influence and able to go from day to day without any bias...those are the ones who will benefit.  

Today, we see/hear many analysts, experts, pundits and fund managers making outlandish calls - I guess it's fun for the media to twist everyone's head around.  I recently heard some well-known and older analysts who predicted a deep correction then suddenly turned tail and are now raging bulls.  I guess these 'mysterious' markets can do that to people!

Lastly, how about the rest of the year?  You want to know what I think will occur in the second half of 2014, right?  Nope, sorry...you won't see me doing that here.  Markets will tell me (and you) what to do each day.  Follow 'IT', not 'THEM'.