To Be Early/Late Is Right/Wrong
Contrarian investing has always been a fascination of mine. From the first time I read Humphrey Neill’s classic book The Art of Contrary Thinking, I’ve been watching magazine covers, newspaper headlines (above the fold, of course) and anything else that can suggest what the masses are thinking.
In case you’ve never tried it, being a contrarian is incredibly difficult. Michael Batnick described it perfectly on The Irrelevant Investor, saying, “By definition, a contrarian is going to be early, but in order to be successful, they can’t be too early. It’s in this small window that greatness exists.”
My own obsession with timing actually predates my introduction to the financial markets. As a trumpet player in the The Ohio State University Marching Band, I was taught, “To be early is to be on time. To be on time is to be late. To be late is to be cut.” The result of that mantra? Five years in the band, not late a single time.
The problem with being early in the markets? It can be painful. Very painful. Even if you end up being vindicated with a positive outcome. Best recent example? As I explained to my wife as we watched The Big Short together, “Sure they were right in the end, but look how miserable they were all along!”
So even though I’ve always been fascinated by indicators and techniques that I would group into the “contrarian” category- magazine covers, investor sentiment, divergences, DeMark indicators, etc.- for me it always comes down to price. And while the contrarian indicators would put something on my radar, a price reversal and subsequent follow-through is what tells me the move is for real.
This is what concerns me about something like the energy sector. Down 22% YTD vs. the S&P 500. All along the way, you could make contrarian arguments that it’s gone too far too fast, it’s oversold, bullish divergences, etc. etc. etc. But until the last couple weeks, when I noted a number of technical signals (trend line break, moving average break, higher high, higher low), it was just another chart in an established downtrend. Now it’s on the radar.
Reprinted with permission from marketmisbehavior.com.
David Keller, CMT
Technical Analyst & Behavioral Finance Expert
David Keller, CMT, is an experienced technical analyst and behavioral finance expert. He has spent his career helping financial professionals improve their performance by understanding market dynamics and investor psychology. He has challenged employees to achieve their personal and professional goals with a focus on improving communication skills.
David was most recently a Managing Director of Research for Fidelity Investments in Boston. He managed the Technical Analysis team at Fidelity Management and Research, as well as the legendary Fidelity Chart Room. He also co-managed the Business Associate Program, a rotational program for recent undergraduates.
David is a Past President of the Chartered Market Technician (CMT) Association, where he currently serves as a Subject Matter Expert for Behavioral Finance. He is also a member of the American Association of Professional Technical Analysts, the International Federation of Technical Analysts, and the Academy of Behavioral Finance & Economics. David has lectured on technical analysis and behavioral finance as an Adjunct Professor at the Brandeis University International Business School in Waltham, Mass.
David was formerly a Technical Analysis Application Specialist with Bloomberg L.P. in New York, and was a regular contributor to Bloomberg Markets magazine. He is the editor of the book "Breakthroughs in Technical Analysis: New Thinking from the World's Top Minds", published in August 2007 by Bloomberg Press.
David is a classically trained musician and student pilot, and resides in Avon, Ohio with his wife and two children. He received degrees in Music and Psychology from The Ohio State University.