The Fed Just Killed Fundamental Analysis Forever
It’s been an interesting few weeks, hasn’t it?
Beyond the roller coaster of a ride and panicked
market reaction to what is normally good news (like rate cuts and the Fed
injecting liquidity), below the headlines a fundamental transformation of the
markets is taking place.
We’ve seen interventions by the Federal Reserve
in the marketplace before, most notably after the 9/11 attacks and again in
2008 and 2009 as liquidity became an issue.
But what is happening now is unprecedented in
size and scope. The US government, through the Federal Reserve, is
injecting so much money into the markets through multiple instruments that it’s
impossible any longer to make evaluations on price action based on
fundamentals.
Put another way, the whole notion of price as a
reflection of an honest, transparent, voluntary ‘struggle’ between a buyer and
a seller has been washed away by the flood of money.
Banks, funds, huge corporations and
institutional investors have been given almost free access to an unlimited
amount of money (rumored at more than $3 trillion), to prop up the
markets. Congress and the President are talking about even more money.
With all that ‘new’ money chasing a fixed number
of stocks (now trading at 30% or so off their highs), the prices we will see in
the future don’t really reflect reality. It’s like entering the Matrix
with all sorts of superpowers that alter the laws of the universe. But what happens when you’re in the Matrix
and something happens that affects you in real life?
If you’ve been using the strategies I shared in
“The 30 Minute Stock Trader”, you already know that it doesn’t matter what the
fundamentals look like, because they’re not a predictor of future price
action. They might not even be a predictor of the future viability of the
company. They might not even be ‘real’
at all (as we saw with Worldcom et al).
The strategies that I explain at length in the
book empower even the average investor to ignore all the noise about Earnings
Per Share, Price to Earnings Ratios, anticipated earnings growth and all those
other completely irrelevant metrics.
Instead, we focus on strategies that establish
probabilities of general price trends and pair those strategies with other
non-correlated strategies to protect us if our assumptions are wrong.
Sometimes people ask, “But aren’t you creating a
huge blind spot by ignoring fundamentals?”. The answer is, “No. I know what I don’t know; I’m not blind to
it. I choose to remain focused on the
only thing that really matters; price action’.
It’s a simple, but immensely powerful trading
methodology. Those who’ve read my book and implemented these strategies
have traded profitably from ups and downs in the market over the last 20
years. Just as importantly, we trade with confidence and without fear
or panic.
In fact, the more irrational the market becomes,
the better we will do.
If you would like to develop your own automated
trading strategy built around your personality, risk tolerance and portfolio
goals, I’d like to invite you to join my Elite Mentoring Program. I’ll
have an opening for one or two investors to join me next month for one on one
training and mentoring.
With the US sliding into recession, much of the
global economy shutting down and the markets in a panic, it’s the ideal time to
master the principles of the most successful traders in the world.
Have a great day!
Founder Trading Mastery School
TradingMasterySchool.com
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