Point and Figure Charts: A Podcast on Current Market Conditions

by | Mar 12, 2011 | Asset Management, Stock Market Comments

This is a transcription of the Mullooly Asset Management podcast from March 10, 2011.

Hello, I’m Tom Mullooly and this is the Mullooly Asset Management podcast for March 10th, 2011. Before we begin, we’d like to remind our listeners that we strongly urge you to consult with an investment advisor before making a decision to buy or sell any investment. If you don’t have an investment advisor, you can call Mullooly Asset Management. We can be found at www.Mullooly.net, that’s M-u-l-l-o-o-l-y.net or you can call us at area code 732, 223-9000.

We also want to say this right up front, if you’re relying on a podcast for investment advice or for investment guidance and direction, you’re making a huge mistake. Make sure you speak with an advisor before making any decisions.

So in this podcast today we’re going to be talking about the most current John Dorfman article that’s found on Blumberg.com and you can also find it in many of your local papers around the United States. Here in New Jersey you can find it in the Asbury Park Press every week on Sunday. And we’re going to talk about the current status of the market for March 10, 2011.

Back to the Dorfman article. John Dorfman, money manager, also syndicated columnist for Blumberg, in his column he runs an annual contest to predict economic indicators for the coming year. In my opinion, that is a complete waste of time and I want to talk about making predictions today.

If you turn on CNBC or Blumberg or read any financial publication, that’s really all these media places want, they want predictions. Sure, there’s going to be some analysts or some experts who are going to have a great track record of predicting or they may provide compelling reasons why their prediction will ultimately come through, but when you get right down to it, they’re making their best guess.

What we do at Mullooly Asset Management is we focus on what’s happening right now. If we listen to all the predictions two years ago, how commercial real estate was going to be a bust, we would have missed a wonderful opportunity to make money. Focusing on what’s happening now instead of what should happen or what ought to happen or what could happen keeps us flexible.

Likewise, a lot of people were pounding the table on emerging markets this year in January, but our indicators were falling and in most cases, we’re out of international markets or we’re out of them in a meaningful way. We’ve cut back severely on our investments, even though they were great in 2009 and in 2010, our indicators are already showing that trouble exists. We’d rather not have a significant amount of money right there.

Does it mean we’re perfect? No. Does it mean that the indicators we’re using are perfect? No, they’re not. But avoiding predictions and avoiding getting swung around by emotions helps us from boxing ourselves into a corner.

How many times have we heard about a lucky person who accurately predicted a big move in the market but then didn’t get back in or it didn’t get back out for the next move? On the flip side, I came from an environment, before I started Mullooly Asset Management, I was a retail broker. I worked for the big brokerage firms and the funny thing is, the atmosphere at these firms were always bullish when I worked there. How can that be so? There’s certainly times when you should be in the market and likewise, there’s times when you should be out of the market, or have less money in the market.

And that’s exactly what these point and figure charts that we use at Mullooly Asset Management tell us. They tell us what’s in charge. Is supply in charge of the situation? Is demand in charge of the market conditions? When demand is in command of a chart, prices rise. That’s not a theory that we’ve worked through, it’s basic supply and demand, that’s an economic law. So when supply is in control of a situation, the prices are going to be falling.

The only time emotions really cloud our judgment is when we look at the name on the top of the chart. I’ve handed charts to my clients here in the office where supply is in control, the trend is moving down, it’s very clear to anyone without any experience, looking at these charts and say, “Would you own this chart?” And the clients would respond, “Never! I’d never own something like this.” And then I’d uncover the name at the top and show them, “Hey, this is the stock I’ve been trying to tell you to get out of for the last three months.” Sometimes when you see a picture, it’s a lot easier to move on or make decisions.

So let’s talk about the market. Right now, in early March of 2011, the one thing we have, it’s hard to say that we have a market that’s trending up or down. We have a very, very volatile market. We’ve had more triple-digit up days and down days in the last month than we’ve had in the last six months. One of the things that we chart is called the VIX, which is the volatility index, that has formed a bullish triangle. All that tells me is that we need to expect and be prepared for more volatility, a lot of volatility in the coming weeks. Today we have West Texas Intermediate Oil trading at $105 and 106. Brent Crude is trading at higher. So people are worrying about higher gas prices at the pump, they’re going to have less disposable income, they’re worried about a possible economic slow-down if oil prices stay at these kind of levels. So what are we looking at right now?

Short term, charts are mixed. All of the short-term indicators are starting to reverse down. That tells me that we’ve got a couple of things that we have to do. Number one, we need to stop buying things, stop putting money into market. Number two, we have to look for any kind of trading profits and consider taking money off the table. We also have to look at anything that has worked out really well and say, “Okay, maybe it’s time that we start taking some money off the table.” So stop buying, we need to look for trading profits and flip them, anything that, you know, we’ve got a nice profit in we’re probably going to want to cut back.

The other thing that we do, when the intermediate and longer term charts still look okay, like they do now, is we need to start building on the side a little shopping list. Okay, so perhaps we go through a little bit of a correction here. What are the things that we’re looking at that we want to buy? So longer term, this market is still very positively constructed, we still feel very optimistic about what’s to come in months and over the next year. Short term, we’re going to see a lot of sloppiness.

And so again, we want to remind our listeners that we strongly urge everyone to consult with your investment advisor before you make a decision to buy or sell any kind of investment. If you don’t have an investment advisor, you can certainly contact Mullooly Asset Management on the web, we’re found at Mullooly.net, that’s M-u-l-l-o-o-l-y.net. You can also contact us by phone at 732-223-9000.

We appreciate you taking the time to listen to us and we will talk to you again next week.

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