We do things differently here, not just for the sake of being different but because we are driven to gain insights into market opportunities and risks that most investors miss. For this reason, we sound different to most other financial market research firms.
We know you must analyze data and behave differently if you want to earn superior, risk-adjusted returns. You cannot make decisions in the same fashion as everyone else and expect your investment performance to deviate from the average.
Because of our unique process and unconventional approach, there’s a good chance that if you’re new to Whaley Global Research, you occasionally find yourself wondering what we said in one of our weekly reports.
We get it. That’s why we created this “Walk this Way, Talk this Way” section. It’s to help you clearly understand what we mean when we use terms that may be unique to us. They are really quite straightforward.
Take a look below; we’re confident that in no time you’ll be up to speed with our market lingo.
One of our three Core Principles is that we channel our inner Eckhart Tolle and focus on better understanding what’s happening right now.
In contrast, most investors spend their time focused on what’s already happened and on economic data that is months old, or focused on forecasts three months in the future, or further.
Using old data to make decisions today is as risky to your portfolio as driving while only looking in the rear-view mirror.
As for forecasts, let’s take our cue from meteorology. With all the technology available, weather can’t be accurately predicted beyond 72 hours, and some would say getting it right today is a stretch. If this is true, why would we think that anyone can accurately predict something as complex as the global economy three months into the future? The simple answer is that they can’t.
We certainly keep an eye on what’s already occurred, and pay sharp attention to potential future developments. However, our experience tells us that by understanding what’s happening right now, we can gain insights most investors miss.
In order to be a successful investor, it is imperative to remain data dependent. Being data dependent means that data alone drives your decisions, not the narratives that people spin about the data.
The second of our three Core Principles is that our research focuses on what’s happening at the margin of economic and financial market data.
In contrast, most investors rely on media headlines or the top line economic data point to inform their decisions.
The trend, or the slope, of the data is what matters most, not a single data point.
When we evaluate economic data, we focus exclusively on the slope of the annual growth rate of that data series. This is an important distinction because most economic data is not analyzed in these “year-over-year” terms.
Focusing on the slope of the annual growth rate allows us to decipher the signal, rather than being bombarded with the noise inherent in the monthly or quarterly growth rates.
Our third Core Principle dictates that we focus on understanding not just the slope of economic and financial market data, but also the extremes.
In contrast, most investors focus on averages. With economic data, they focus on how the data performed versus the “consensus expectation,” which is the average opinion of a group of economists. When it comes to financial markets, they focus on average returns and moving averages to help guide their decisions.
We say that averages don’t provide any significant guidance. Instead, we monitor the trend of economic and financial market data to alert us to extreme measures of fundamental, quantitative and behavioral factors.
We study the extremes in markets for the same reason biologists study disease to better understand the healthy body, or meteorologists study hurricanes to better understand everyday, local weather.
When analyzing economies and markets, it’s understanding the abnormal and irregular—the extremes—that provides the greatest insight into risks and opportunities.
When we refer to investors’ “humanness,” we mean all their biases and their predilection to let emotions rule over sound judgment.
Human beings are innately flawed decision makers, especially when it comes to making financial decisions. We are hardwired to do exactly the wrong thing at exactly the wrong time.
This is why understanding the behavioral aspects of financial markets is just as important as the fundamental and quantitative. Remember, markets are driven by human beings making human errors, which is what gives rise to risks and opportunities.
Nowhere is investors’ humanness more on display than when they attempt to evaluate the quantitative aspects of financial markets.
We instinctively obsess over the smooth and symmetric, which is why we look for patterns and symmetry everywhere. This subconscious obsession forces us to impose patterns where none exist, and to deny patterns if they don’t conform to our perspective.
Our DNA is why “technical analysis” is fool’s gold. Investors identify various chart pattern formations or “support” and “resistance” levels simply by eyeballing a chart. Most people don’t understand that chance alone creates false patterns and cycles that appear to be predictive, when in fact they are not.
They also evaluate markets using traditional quantitative methods built on the belief that markets are linear and rational. But in reality, financial markets are a nonlinear, turbulent system produced by the interaction of human beings—in short, chaotic. This makes traditional methods ineffective and misleading.
Understanding the “humanness” of investors allows us to gauge perceptions, reactions and decisions across time, gaining valuable insight into others’ behaviors.
Our insight is distilled from our proprietary Gravitational Framework, which helps us better understand the three most critical forces, or gravities, that impact asset prices: Fundamental, Quantitative and Behavioral. To develop a full understanding of our Gravitational Framework and its unique capabilities to drive asset management decisions, please CLICK HERE.
The first dimension of market structure is the energy, or trend of the market. For this analysis we use SOCIAL to determine the current state of the market. Remember, 75% of price movement occurs only 10% of the time; the rest is just noise. Markets move from one state of rest to another, and then those rest periods are disrupted by investors who believe the market in question is priced either too high or too low. SOCIAL helps us identify when the market is in one of four states: party (bullish), hangover (bearish), taking a breather from the current trend, or completely asleep.
The second dimension of market structure we monitor is the force, or momentum of the market. For this analysis we use MOMO, which gives a clear measure of the force behind the current state of the market, which is identified using SOCIAL. More importantly, MOMO tells us how that force is shifting over time.
The third dimension of market structure is the rate of force, or the buying (selling) pressure associated with the current momentum of the market. For this analysis we use BAROMETRIC, which gives us immensely more information about investors’ degree of conviction than a simple measure of volume alone.
Finally, the fourth dimension of market structure is the drawdown risk embedded in the market. For this analysis we use TOPO, our proprietary measure of a market’s irregularity. Drawdown risk is an often-overlooked aspect of markets until a sell-off occurs. However, it's a primary factor of the underlying market structure and a critical driver of price.
ALPINE AND ABYSS LINES
Our proprietary ALPINE and ABYSS lines are not “support” and “resistance.” Rather, they are the most critical prices above and below the most recent closing price.
We calculate these critical prices based on Chaos Theory and the underlying market structure, which is not visible on a price chart.
When the market’s price interacts with the ALPINE or ABYSS line, the outcome gives you critical insight into the most likely direction of the market being analyzed.
The ALPINE or ABYSS lines provide a great deal of information beyond the standard “support” and “resistance” levels, regardless of whether the market is rejected by the ALPINE or ABYSS line or is able to breakout above (or breakdown below) it.
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