If you watch the hit series House of Cards, you have probably heard these words from Frank Underwood. I think his advice here is very appropriate in approaching the markets, at least for me. Check out this chart:
What do you see? I see it took 13 years to get from point A to point B ending up at the same place you started. I see a buyer and holder at A waiting 8 years to recoup his initial investment only to see it lost again and waiting a few more years to get back to break even at B. This is the S&P 500 from 1999 to 2014. I realize this is an extreme example but a good reminder. Markets go up and they go down, how you respond is up to you.
Obviously, it’s impossible to catch every move but I’d argue it’s very possible, with a little work and patience, to catch a good portion of these major trends. The goal I have, along with most market participants, is to compound my returns at the highest possible rate over a number of years. Buying at A and holding to B seems like a waste of time and capital in my opinion.
That leads us to where we are today. The markets are showing a level of volatilty not seen for some time. Shorter-term uptrends are in jeopardy (longer-term trend still looks up in my opinion) and the case is being made stronger that we may be near a top. No one can predict tops or bottoms but everyone can use the information in front of them to make decisions and control risk.
The way I approach the markets is that I really don’t care if they are going up or down. I’m a chartist and look for the best possible risk / reward scenarios. I don’t try to go against the tide no matter which direction it is moving. To help me with this, I often flip charts upside down just for another point of view. Sounds like something Frank Underwood would do if he was a technician.
I’ve posted the big rising wedge break in Amazon (AMZN) a couple times lately and recently bought puts in this one. See how it looks upside down:
Would you buy this chart? I would and did. It looks like the trend may be changing. Of course I can be wrong and have no problems with that. Plenty of opportunities out there. Here’s a shorter term look at the daily chart flipped:
I like the potential here. Looks like an inverse but not yet confirmed head and shoulders. I’m out of this trade if AMZN comes back above the 995 area but like the odds here and it is working well so far.
Here’s the S&P 500 flipped on a daily timeframe with the 50 day MA:
Looks like it MIGHT be bottoming to me. Would like a higher low before I’d feel more comfortable with that. I can’t control what happens but if the reversal picks up steam I can control how I’ll be positioned. I’m not the type who sees value in waiting from Point A to Point B in the first chart. That’s not even trying and is not acceptable to me.
So when things take a turn one way or the other, I’m going to ask myself – what would Frank Underwood do? Complain about the lack of opportunities or simply look at things from a different angle? You might be surprised at the opportunities that are right in front of you.