I've explained why timing the market is the only way to make money in stocks. I've detailed stocks' "Unbreakable" trading range. Micheal Purves -chief market strategist at BGC Financial- has been saying the same for months. We invited him back to Breakout, not just because he agrees with us, but to lay out the case against micro fundamental analysis and share his key technical levels for what he calls a "Wolf Market."
"The fundamental compass for classic security analysis has really been displaced by a lot of these macro events," explains Purves. The combination of declining fundamentals, uncertainty in Europe, and the Federal Reserve's efforts to push investors out of fixed income have created an environment where both near and long-term earnings estimates are guesswork. As the ghost of Ben Graham would tell you, if you have no basis for judging a company's earning power or their cost of capital, there is literally no way to analyze the stock.
In short, every investment strategy is now based almost entirely on hope. You're better off hoping technical levels hold than you are crossing your fingers until we have fundamental clarity.
Having dismissed roughly 80 years of financial theory, Purves says the low has been made for 2011. With the recent negative spate of news out of Europe whipping up fear, and 1,150 on the S&P 500 as the low end of the Wolf Market trading range, Purves makes the case that the next move is higher. "A little bit of positive economic news over the next several weeks, and possibly some good earnings numbers can move this tape very, very quickly," he offers.
The target for the move higher is 1,250. The stop for a move lower is 1,120. That sets up as a trade with 3.4% downside risk if we drop through 1,120; and 7.7% upside potential if Purves is correct. As this market strategist sees it, investors/traders still need to keep an eye on the macro fundamentals, even if his trading strategy relies on technicals.
Investors need to be willing to "put on capital risk and then take and harvest profits," in Purves' view. It may not be a strategy for everyone but it's the only strategy that's led to capital gains for roughly the last decade; a "long term" by anyone's time horizon.