Technically Speaking

Charles Dow died at the age of 51, but his years were productive.  Dow was the founding father of the Dow Jones Industrial Average, the Edward Jones investment firm, and the Wall Street journal.  Busy guy.  He also developed several ideas and strategies regarding how the stock market functioned.  The core of those beliefs are summed up what is commonly referred to as “Dow Theory”.

Simply put, Dow Theory states that markets moves in trends.  There are different stages within each trend, but essentially Charles Dow believed that the past market direction was an indicator of future market direction.  This simple theory laid the framework for the modern-day practice of "technical analysis".  (Source: thedowtheory.com)

Technical analysis has taken many different forms and has given us colorful vernacular in describing chart patterns, e.g., falling window, dead cat bounce, cup with handle, and head and shoulders.  The computer age has given rise to the use of complex models and formulas designed to measure momentum, direction, and turning points within a trend.  Many investors base their entire investment strategy on such analysis in an effort to buy at the beginning of a trend, and sell once the trend changes. 

While I don’t subscribe to the belief that technical analysis is the holy grail of investment management, I do see value in the idea and have begun to use technical analysis as a risk management technique, relying on it as a timing strategy.  In pursuit of a deeper understanding, I decided to pursue the designation of Chartered Market Technician® (CMT).   

The Chartered Market Technician® (CMT) credential is the preeminent, global designation for practitioners of technical analysis. The designation is awarded to those who demonstrate mastery of a core body of knowledge of investment risk in portfolio management settings.  After eighteen months of study, I was awarded the designation early this month.  In doing so, I’m proud to become the only such holder of the CMT designation in Mississippi.

Outlook

The Dow Jones and S&P500 continue to sit near an all-time high.  While the longer-term trend is still in place, in the near term, the market appears to be caught within a tight sideways range.  While we continue to like certain sectors (healthcare, infrastructure & financials), we anticipate higher volatility in the coming months, and recommend continued caution. 

Although US stocks no long appear "cheap", Europe appears to be a potential bright spot.  I feel valuations are relatively attractive, and markets are showing signs of life.  As we mentioned in last month's post, the French elections took place in May.  Emmanuel Macron took the victory as investors celebrated, driving French stocks up nearly 5% since early May.