🔮 Technical Astrology

Yes. This is the City Chad, your lifestyle sorcerer, ready to turn your financial situation into a magical experience. Let's start conjuring!

In this week’s edition:

• Markets: 😐 Uncertainty

• Article: 🔮 Technical Astrology

• News:📈 SEC's New Short Selling Rules

• Chad Beta Of The Week: 💔 Will Smith

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MARKETS: 😐 UNCERTAINTY

After last week’s (and ongoing events) the tone in the World is somber.

Uncertainty is the flavor of the times. And this has also been reflected in the markets over the past week.

Stocks had modest losses as people are trying to figure out what is next with regards to inflation, interest rates and geopolitical risk.

As expected, the troubles in the Middle East brought up the price of oil.

There are now even calls for the inflation target in the US to be raised from the modest 2%. It seems the stubborn inflation is making investors lose patience.

What do you think?

I for one don’t like to see prices rising consistently. But for me the trouble goes back even further…

Do we really need supposedly independent Federal Banks determining the cost of money? We will leave that discussion for another day.

Almost forgot. We could not not mention the fake news that shook crypto this week. An intern at Cointelegraph decided to post some fake news on X about the approval of a Bitcoin ETF.

This made the price of BTC rally around 10% but then fall back once the scam was discovered.

Many people got liquidated and of course the conspiracy theories started. I will not bore you with them but many people were a little upset to say the least.

What the hell was CoinTelegraph doing by letting this happen?

ARTICLE: 🔮 TECHNICAL ASTROLOGY

TLDR: Does Technical Analysis (TA) work? A lot of people use it with varying success. But if making money was as easy as looking for shapes in a chart, everyone would do it. And if everyone did it, it wouldn’t work, as we will explain. Should you implement it as an investment strategy? Let’s find out.

• What is Technical Analysis

• Does TA Work?

• Chart Patterns

• Essentials Analysis

• Self-fulfilling prophecy

• Final Thoughts

What is Technical Analysis

The core idea behind this approach is pretty straightforward.

Technical analysis (TA) is a method that aims to forecast the future price movements of assets.

It mainly does so by examining historical price charts and trading volumes.

A price chart represents the movement of an asset, shaped by human choices.

This assumes that humans often follow predictable patterns when making decisions.

If we can discern these patterns we could foresee the asset's price.

So TA revolves around identifying trends on these charts.

DOES TA WORK?

Asking if TA works is asking if anyone can predict what humans will do.

You probably know the answer: not always.

Especially because you can get into what is known as a “Keynesian Beauty Contest”.

We start by investors using TA to act based on what they think other people will do. But then they know other investors are doing the same. So then they act based on what they think other investors think other investors will do.

Then those investors act on what they think other investors think that other investors will think will do.

And this silly situation can continue forever and yield little predictive power.

TA can also be exploited by some who are promoting courses or get-rich-quick schemes. Results can be manipulated through overly optimized backtesting.

This oversimplified chart interpretation is why some humorously liken technical analysis to astrology for business.

Yet... we know that at least a third of professional portfolio managers utilize it with varying success.

And the truth is that technical analysis encompasses various concepts under its umbrella.

The real question is: Which of these concepts could the average Joe apply to gain an edge in their investments, if any? 

It’s hard to know. So here’s some pointers…

CHART PATTERNS

Do you like stars? Do you like looking for constellations? Or maybe you like randomly joining points to form figures? Well, chart pattern analysis may be for you.

Chart patterns analysis is the most popular form of technical analysis. And also the simplest.

I’m almost sure that you have seen them being mocked with memes on Reddit. And for good reason, since building a consistent investing strategy based on them is not easy.

Having said this, they can be useful.

According to LogicFX “chart patterns should primarily be used to time the entries into the markets and provide the best risk to reward ratio possible, after a fundamental bias.”

So they can be useful when complementing fundamental analysis.

ESSENTIALS ANALYSIS

By essentials I’m referring to elements that collectively form the foundation of technical analysis.

These elements are the following:

Candlesticks: A visual representation of the price data of an asset, showing the opening price, closing price, highest price, and lowest price in a period of time.

Support and Resistance: A support is a price level at which an asset tends to stop falling while a resistance is a price level at which an asset tends to stop rising.

Momentum: This refers to the speed and strength of price movement, usually indicated by the Relative Strength index (RSI) and the Moving Average Convergence Divergence (MACD)

Indicators and Oscillators: Besides the RSI and MACD, there are other indicators that could show if an asset is overbought or oversold, like the Average True Range (ATR) and Moving Averages.

Volume: This refers to the number of trades in a period. A significant price move accompanied by a high volume can be seen as more reliable than a move with low volume, for example.

Surprisingly, there’s evidence that a strategy built analyzing the essentials may actually outperform a buy and hold strategy during some periods.

You can think of it as akin to counting cards in blackjack, where your chances of winning improve as specific scenarios unfold.

SELF-FULFILLING PROPHECIES

Going into what makes those strategies work.

Some people would argue that they work because people believe they do.

For example, let’s say that a group of unrelated people use the same indicators to see when to buy or sell.

If the indicator makes enough people to buy, the price will rise, while if the same indicator makes enough people to sell, it will go down.

Seems like a logical explanation, right?

However, if that were the case, the strategies would deliver stable returns.

That’s not the case. Those strategies can see long periods of underperformance, throwing the self-fulfilling prophecy hypothesis through the window.

FINAL THOUGHTS

In retrospect everything looks easy.

And back-testing is the easiest way to make yourself like a genius.

The hard part is looking forward, making an educated guess, and applying the right strategy at the right moment.

So, should you implement technical analysis in your investment journey?

It depends. I personally don’t use it much. And for the average long term, buy and hold investor it may not make much sense.

I would look to see if it is actually something I want to become an expert in and if the edge it may give me is worth the time. For me the answer at the moment is no.

But it is a fun topic to explore, like getting your palm read at a bar.

NEWS: 📈 SEC'S NEW SHORT SELLING RULES

The US Securities and Exchange Commission (SEC) has introduced new rules, in an effort to enhance transparency in short selling.

Funnily enough, we were talking about GameStop last week. Which is one of the factors that drew attention to short selling.

Basically, the rise in GameStop’s stock prices led to huge losses for hedge funds that were shorting on it.

That snowballed until the Congress got involved, ending with the SEC compromising to enhance transparency in the market, especially concerning short selling.

These measures are supposed to promote competition, besides benefiting the general public and regulators.

Why do people hate on short-sellers, you may ask?

Well some people see it is a bit of a douche move to make money when a company is going down.

And short sellers can actually put pressure on things to get even worse as it is a market signal that the supposedly “smart guys” are not keen on a stock.

Company owners and founders hate it when there is a lot of short interest on the stock.

Even Elon Musk dissed Bill Gates when he found out he was shorting Tesla.

But playing devil’s advocate short selling can be a healthy thing for the market. Not every company can succeed and the role of the market is to reflect the real value and opinions of the participants.

Short selling is a part of it, whether we like it or not.

CHAD BETA OF THE WEEK: 💔 WILL SMITH

I used to enjoy The Fresh Prince of Bel-Air a lot growing up. An entertaining comedy with occasional feel-good messages and drama.

I never imagined that in the future, Will Smith's relationship with his wife Jada would bring 10X the drama as the show.

Let's go back to about a year ago, recapping the infamous slap Will delivered to Chris Rock due to a lighthearted joke about Jada's appearance.

The slap was the crowning moment of a broken man trying to prove a point through violence on a smaller man.

Not a Chad move at all. Not even a Beta move. Just cowardly.

Now, before the incident Jada publicly admitted to cheating on him with her son's friend.

And now, Jada has said that she and Will have been separated since 2016.

Are you telling me that Will destroyed his reputation even further by trying to defend his cheating EX-wife by slapping Rock?

That makes absolutely no sense.

So, despite Will being the victim of a pretty brazen narcissist, I have no choice but to give him the dishonorable title of Beta of the Week.

His situation seems really horrible. It seems that every opportunity Jada has to humiliate him, she seizes to the fullest.

But as the old saying goes, in life you get what you are willing to tolerate…

Every man and woman has to learn to know when enough is enough. Your self-respect cannot be above how much you like someone.

Come on man, you need a good pair of pants and to put an end to the emotional abuse you're enduring.

You're really the only one who can do something about it.

Let's hope that the next time we mention you, it's as the Chad of the Week instead of the Beta.

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