In the Markets, You Will Find What You Are Looking For

It is 5:02 pm Thursday as I started writing this and the lead story on the financial news channel in the background is “Big Investors Flee Apple.” Apple stock ($AAPL) was actually up on the day almost 2%, but I can give them the benefit of the doubt. It has been floundering for a while and well off of its highs. But what makes this more interesting to me is that this same day the S&P 500 and Russell 2000 Indexes closed at new all time highs. 8 minutes into the show its all about Apple and nothing about record stock index levels. Wow! The floundering S&P 500, unable to break through 1850 for weeks was the big media story prior. Did this signal a top? A reversal lower in the very near future? Once a new high was made that story gets thrown away.

It is no surprise to many that there is a bias in the media and I am not trying to pick on anyone. But this example serves to show that no matter who you are, no matter what your bias, you can find supporting data in the markets. This is the hardest part for most new students or casual observers of Technical Analysis (TA). If you focus on what you want to see you will be right some times and wrong some times. It is fine to be right and continue to find supporting data. It does not hurt your account value. But when you are wrong you will be very wrong and continue to find data that supports your view. This can lead to rejecting TA outright or not trusting it. But TA is not about looking for one small message in the total price action. There are many messages and good TA looks for all of them to paint a mosaic of the the flow. But good TA goes one step further. Good TA also understands that the mosaic message in the charts can also be wrong or overwhelmed by exogenous factors. So great TA takes that mosaic as a possible map down the many slopes of the ski hill, not like the defined bobsled course that never changes.

Keep an open mind. Build mosaics. Be ready to reject them in an instant. That will make you a better technical analyst or trader.

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