Someone asked me in last week’s Q&A if I use technical analysis in my work.  I said:

“Depends on what you mean specifically.  Some forms of technical analysis, such as historical data, can be extremely helpful in understanding the probabilities of certain events and how the future rhymes with the past.  Charting, a form of TA, is little more than a visual of this data and the fundamentals driving past prices.  Charting is excellent for perspective, but is only a compliment to fundamentals in my opinion.  I don’t put much weight in “bear flags” and “inverted hammers” and stuff like that.  There’s a lot of datamining in those “indicators”.  I use TA and historical data quite a bit in my work, but that’s more an effort to understand how the past is prologue.

My investment approach uses a big top down approach.  So I start with an understanding of the monetary system, break this down to an understanding of its impact on specific markets, and filter that into a specific strategic approach.  That’s all driven much more by fundamental work than anything else, but I do certainly utilize elements of charting and TA in my work….”

Here’s a good example of how technical analysis (charting to be more specific) can offer some of this perspective.  The follow is via Todd Harrison at Minyanville:

“I’ve highlighted two graphics below, courtesy of Albert Edwards of Societe General.  They  paint an unpopular perspective but one we would be wise to consider.  Markets move in two cycles—secular and cyclical—and while we’ve witnessed a Pulp Fiction-esque economic adrenaline-induced rally off the 2009 lows, the structural impediments to legitimate growth—in short, too much debt—remain in place.”

(US and European Equities vs Japanese Lost Decade)

(US and German Bond yields vs Japanese Lost Decade)

History doesn’t repeat, but it does rhyme.  Understanding the big macro trends can really help gauge perspective in the markets and economy.  Throw in some fundamental analysis on top of this and understand how a balance sheet recession works and suddenly these charts start to make perfect sense.   And in this case, it looks like the whole world is starting to look Japanese….


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • In Accounting

    For those that haven’t seen yet, dshort.com also has some similar comparisons.
    Four totally bad bears: http://www.advisorperspectives.com/dshort/updates/Four-Totally-Bad-Bears.php
    and the megabears: http://advisorperspectives.com/dshort/updates/Real-Mega-Bears.php

  • VII

    I own a sliver of EWJ-(it’s bleeding and won’t stop) And I hate it.

    Better figure this one out today.

    “the beatings will continue until morale improves”.

  • hangemhi

    there goes by TBT idea.

    Cullen said “Throw in some fundamental analysis on top of this…”. I assume you’re comfortable with the “fundamental analysis” you’ve already done???

    Also, have you seen the recent “Obama spending” analysis showing that actual spending has been low. http://www.politifact.com/truth-o-meter/statements/2012/may/23/facebook-posts/viral-facebook-post-says-barack-obama-has-lowest-s/

    Deficits are high due to lower tax revenue, not spending increases. I’m curious if that matters much.

  • jaymaster

    Hang, the article you linked doesn’t say government spending has been low.

    It says GROWTH in spending has been low. Two different things entirely.

    And by MMR theory, a tax cut can be just as effective as an increase in government spending.

  • VII

    I’m going to buy it for my 15 month year old son- NOT for myself or my clients.
    EWJ- I have a whole bunch of stuff on EWJ that looks good..but the price is stuck with everything else- I read something good from Einhorn on Japan but I don’t defend the guilty.
    Someone explained EWJ, Europe and a particular STOCK to me last week like this. HE said..they are destroyers of capital. And I will say he is right. When you give them money they destroy capital. They are like the banks, like many poor stewards of capital. They are totally broken. When Europe fixes itself I will buy with impunity. But they are broken and it doesn’t matter how cheap they are.
    Same goes for Japan- I own it and I hate it. I expect a move up in the market after we test 1200-1220 back up to 1350. At that point I will have to take a look at EWJ.
    Only Bens teet can save the stock brokers, Financial advisor or what ever they call themselves who manage others peoples money. There like crying babies needing to be coddled. Like a spoiled child who picks a fight with you then brings his 5 cousins with him to the fight. That what Monetary Easing is…it makes the BJMs and Jeff Sauts(who I like) think they can post on a site they called the bottom. When behind them is Big Ben and his helicopter. There skills are nothing more than the ability to cry loud enough to get more milk from Bens TEET.
    I make no apologies for telling it like it is.

  • Leverage

    VII what I fear about “helicopters” is that at some point it will be seen that they are powerless.

    Imagine we have an helicopter call from Ben but spending keeps contracting and profits falling, and unemployment rising. When the emperor has no cloths it’s the day the SPX crashes for good (and I’m talking about one of these days that the stock market crashes >10% and falling up to 25% in a few sessions).

    I think the next helicopter drop (could be ‘soon’), if nothing else changes, will be the last time it will have any effect on the stock market.

  • http://www.kelpie-capital.com Kelpie Capital

    Every time I see these charts I get a fright. They don’t lose impact!

  • Larry

    If past is prologue, if it rhymes, then it seems we can look forward to modestly higher T-bond yields and sharply lower equity prices.

    Fundamental analysis can be summarized: China slowdown is accelerating, the EMU is on the verge of disintegration and a severe recession, and now US is also slowing. Seems like TA and fundamentals support each other.

  • BJM

    You do realize that Cullen’s algo is currently in bullish accumulation mode, right? This bottoming process has nothing to do with the potential for QE 3 or any ECB action – Mr. Honey Badger will use anything and everything as an excuse to move higher in order to clear this massive accumulation of negativity. JUST LIKE he has used anything and everything since the second quarter began as an excuse to clear the massive accumulation of positivity at the end of March.

    Here’s a breakdown of market prognosticators’ current outlook:

    1. Cullen’s algo – bullish accumulation mode

    2. Doug Kass – believes the market will make new highs later this year based on muddle-through growth and reasonable valuations.




    3. Zeal LLC – cautious, believes we could hit secular bear resistance of 1500 at some point before descending to a final secular bear bottom



    4. Saut – most likely will come out with a “sell” on Monday given we’ve broken through the lows

    5. Ned Davis himself – currently in neutral until the “tape” turns positive; believes we need more monetary stimulus, as annualized monetary growth has turned negative over the past couple of months

    6. Ned Davis Research the service – “cycle research” called this pullback to a T, a 5 to 10% correction before resuming the cyclical bull that began last October. After we rallied off of 1291 NDR said that we are in a “bottoming process” that will most likely see us re-test the 1291 lows. They said their call relies upon a “muddle-through” economic scenario, which I believe is the case as proven by Cullen time and again, not withstanding today’s nasty jobs report. I’ll be very anxious to see NDR’s “daily trading sentiment” poll on Monday – my guess is today drove it down to new lows not seen since last October. The more general, slow-moving sentiment poll will also most likely probe new lows next week.

    7. Kiron Sarkar over on The Big Picture – was massively short heading into May, but has since gone 30 to 40% net long based on Germany’s willingness to accept a whiff of higher inflation, potential Chinese stimulus and how close we are to the EZ/ECB being forced into coming to a solution/kick-the-can move on Spain.


    8. Hussman – obviously massively bearish and difficult to incorporate into any type of market analysis ensemble

    All that to say – some pretty good smart money appears to strongly disagree with the “crash” warnings and recommend taking advantage of this current weakness. I believe this secular bear will ultimately end, perhaps even below 800, and when the time comes I will be as bearish as humanly possible. However, with this level of negativity and US deficits, and with central bank fingers firmly on the deflation-fighting trigger, i think it’s very dangerous to be short right now.

    I have no idea where the bottom in this market, nor do I care. Whether the bottom was today or 2% lower doesn’t even remotely matter if you think the market is moving back above 1400 in the next 6 months.

    Mr. Market – keep the liquidity coming, please!

  • VII

    You are why my E&O insurance keeps going up
    When your wrong promptly admit it. Now you “don’t care”
    But you do care. Your clients pay you to care. They require that you offer then something better than riding it down. Why pay you fees ?what do you do? Your only bullish and expect them to ride the roller coaster. You dismiss market timing with vague I can’t pick the bottom broker talk. So what do you provide your clients. You dismiss the 10 yr, you dismiss a 11. % decline to your clients net worth and make jokes about waiting for an animal called the honeybader I created.
    Ben has created young advisors who think QE is part of the market. Who think FB must guarantee a return to them. Over the last 3 years when the market cries Ben gives you his teet.
    Why pay you fees? If you think they should hold till 1400 they really should use betterment, private capital or I shares allocations. Your adding no value just charging fees to quote other market experts, and argue/dismiss anything or anyone that calls your logic into question.
    We both know you know nothing about price action.
    1375 bullish, 1363, 1360, 1350, 1340, 1325, 1310, 1300,1290,1310,1320,1300,1290,1280,1277. The whole way down you said price action was bullish. WTF? Now we’re 11% down and you just don’t care? Really? Do you not care or just have no clue? You do care. Your clients care. The pay you to do more than respond with… In 6 months you’ll back to even. That’s worth the fees.
    I doubt your on your own with no pay protection. No independent advisor needing to perform chooses to be so average and not be open. Only a young broker who doesn’t feel the full impact of underperforming with the market can not care. I don’t have that luxury. My clients expect more. I’m always wrong. But never wrong long.
    I don’t want to be right and argue with the market. I go with it . It drilled that into me. I surrendered finally.
    Your never wrong BJM. In spite of seeing the 10yr predicting the SPX at 650 you tell the 10 yr it’s wrong. The SPX down where you said it wouldn’t be is now forming a bottom you never thought it would be forming.
    Your the smartest broker I’ve ever read. Smarter than my team.
    Your long as you were and will be no matter what. Citing how negative everyone is in spit of your own complacency.
    Why do the bulls always cite how bearish everyone is.
    Go long BJM, lever up all the positions you never post you own

  • SC

    Ok,I’m going to be the one to blow the big raspberry at those charts. Instead of looking at how they appear to ‘fit’ can someone tell me why the particular dates have been selected to ensure they get the best possible ‘fit’?
    What was so special about “1990”?.Actually ,if you really want to talk supercycles move the US and Europe back to the early 1980’s.It makes as much sense as starting off in 1990 !
    The Japan chart I get,totally. It’s policy driven. Huge expansionary bubble followed by inadequate labour reform and debt writedown. Throw in some cultural idyosynchrocies re saving rates and age dispersion and pop growth and it all adds up to domestically driven stagnation where the only ROE is Mrs Watanabe balancing her post office JGB account with wild punts anywhere in the world she thought would grow faster.
    IF you think that is how the US prefer to play then run the chart. I though note many differences and would choose not to run that chart. Now Europe,yes I can think of some countries in Europe (oh France were we really talking about you Monsieur?) where many of those policy decisions and cultural stuff hold true. Funny thing is Merkel gets’ her way she wants to dismantle some of that quasi Japanese European stuff in favour of reform so the jury is still out on how that is going to turn out.
    Basically it really comes down to how fast these various countries want to shake out the deadwood whether it is debt that’s not going to be repaid (on time) ,or whether it is labour practices that were accrued when the world looked very different.
    As for Japan,there is nothing wrong with Japan that couldn’t be put right by throwing everyone over 45 over a cliff.They are the problem ,doesn’t sound pretty ,but that doesn’t make it wrong.The strength of of our species is our ability to be adaptible and that’s been my main critique on Japanese policy for the last 20 years and periodically when the same numpties keep popping their head above the ground crying “look how cheap Japan is ,book value etc”. Please save me from such crap. Japan has been cheap on book value for sound reasons already mentioned above and will stay that way until they want to rejoin the world by adapting to it.So far all they have demonstrated is how doing the same thing and expecting a different result really works. As and when they eventually escape the stagnation trap they have built for themselves it will be either because the rest of the world floated their boat for them,or something will kill off the older end faster and the average age will drop dramatically. Please note I have no inntention that every young Japanese should go out tomorrow with a personal target of bonus points per old gimma culled. ;)

    This is not that complex really. Tomorrows ROE depends on how fast you want to adapt by getting rid of yetserdays misallocated debt and the latter will also be refelcted in asset value levels. Japan was crap at it and trapped itself ,but will the US and Europe,well you tell me.

  • Helix12

    Love reading Leverage & VII. They are on the money

  • BJM

    Your clients missed the rally since March 2009 yet you now claim authority since you’ve been introduced to Brandon Ferro. Hahahahahahaha.

    You claimed awhile back that you are no the smartest poster on this board, so you outsource your thinking to guys like Ferro. Your clients must feel very warm and fuzzy.

  • Mr. Market

    QE only helps the asset class that Wall Street considers to be “”hot””. And currently that asset class seems to be Treasuries and/or gold. It seems I’ll have to switch back to my “”Bond Vigilante”” PC-alias somewhere in the (near (??)) future when I look at the charts of $UST, $TNX, $TYX and $USB.

    When EVERY asset class is heading south then “”our Benny B.”” can QE whatever he wants but it won’t help one bit. Who wants to go long on leverage when every asset class is heading south like in 2008 ?

  • BJM

    Case in point how you don’t think for yourself, your comment above about the FV of the SPX came from Ferro here:



  • VII


    Yes. I have 3 CFAs, 1 CMT, 2 Quants from MIT and Bejing U and I value B Ferros advise. In doing so I have most likely developed the best process money can buy. My clients are making money, I’ve missed this decline and I get the opportunity to share with those humble enough to discuss the market.

    In the 15 years I’ve been doing this…your the biggest asshole I’ve come across in this business. And I’ve been around alot of dicks in Yellow sports cars with matching cufflinks in Newport Beach. Arrogant and stupid.

    Your clients are down 11% and rather than seek the truth or discuss how your process can improve you dig futher in.

    Like I’ve said before…BUY BJM. Lever youself up. It’s not your money. Still wondering why anyone would need someone like you to tell them to wait 6 months for the market to hit 1400. Which is where it was at 12 years ago. More…we were at this level back in 2010, 2007, and 2000 right?

    I’m going in circles now speaking to young boy on the internet. I don’t know where they went wrong with you. But your on your your own now…playing with others money.

    I’ll be signing off from further discussions with you. I think we’ve wasted enough air

  • VII

    BJM- The calculation is simple math. Try it.. It would help you.

  • VII

    Your right. I try and work with the best who think differently than I and point out areas I’m weak in. I surround my self with the best. Still wondering why you distract yourself from what your job is. It is to protect your clients money first and then grow it. I would pay you if I thought you had something to offer. It is why I now should distance myself from you.

    Your provide the push for me to practice patience. You also provide the liquidity for those who keep selling in to your bullish price action.

    Father Time and the market will help you. As you get older you’ll look back at moments where you could have made your clients money but decided you wanted to be smart. You could have sold and locked in some profits rather than hold this all the way down 11%. You just needed to be open to another persons views. Next week I may close out something I put on and go long. Who Knows….I’m open to anything. Except having sex with farm animals and wasting time with my family talking to young boy who’s smarter than I ever will be.

  • BJM

    I have absolutely no problem using other people’s work – as I myself have used many examples of what others are thinking in order to defend my own thinking. The problem I have with practically every single thing you post is that you use Bferro’s work but present it as your own without CITING him. So what you get is other posters on here referring to you in the same vein as Ferro, i.e. as an authority, which could not be further from the truth.

    Surround yourself all you want with great talent, just stop taking credit as if you are the brilliant mind behind all of these prognostications.

  • BJM

    Here is a real live example of another poster taking VII seriously, as if he has this wonderfully original line of thinking, when in fact he is merely a parrot reciting Bferro’s work.

  • http://www.pragcap.com Cullen Roche

    Let’s try not to get too personal here. I really don’t like to see people get at each other’s throats on the internet. There’s ways to point out a flaw in someone else’s thinking without being hostile or rude. Not that you’ve done that BJM, but I just want to step in before it spirals out of control because I can see this going that way. Not defending anyone, just playing internet police. :-)


  • VII

    @ BJM

    B Ferro’s work is so good even a parrot like me can make money. You want to be the smartest Bull. I just want to make my clients money. I don’t even understand your arguments. My job is to win. I put the best players on the field. The game is over and your launch into tyraids after losing about why I’ve chosen to use Kobe Bryant, LeBron James, Rondo, Tim Duncan, and Durant on the same team to win.
    I’m supposed to use the best. Your now tearing down my roster thinking that means anything.
    BJM- your right…I use good people to help me and I’m not that smart. Now Cullen has evoked the TPC police..and as I said on this site once before..it seems I can’t even avoid getting arrested on a web-site. Trouble just follows me.
    So…we disagree. Now..for the sake of everyone who reads this and for the good of the world- We can now part ways. Some people don’t mix well. Thats ok.

  • perpetual neophyte

    Vee – Granted, I am probably missing something as I am terrible at using charts of historical events to predict the future, but Ferro’s implication that the S&P’s fair value is south of 700 seems waaaay oversimplified even using the few data points cited on that chart. It seems to assume that one price will meet the other _in the future at current price levels_. Instead, it seems like stocks can drop a lot, bonds can drop a lot, or both can move some.

    Granted, even that latter option could have the SPX trading closer to 1000 than 1200…

    That’s assuming you ignore the fact that the 3 examples cited on that one chart are all pre-US Fed QE programs if I am not mistaken.