At Blue Harbinger, we are disciplined long-term investors. But that doesn’t mean we don’t pay attention to short and mid-term technical market conditions. However, technical analysis is a tertiary consideration for us, behind asset allocation (e.g. “beta,” or your mix of stocks, bonds, cash) and picking attractive individual securities (e.g. “alpha”). Here is how we monitor technical conditions, and some thoughts on whether the strong start to 2019 is just a “relief rally” within broader bear market conditions.

In our view, if you pay too much attention to the day-to-day technical conditions, it will distract your from achieving your long-term investment goals (not to mention causing you to lose sleep). Nonetheless, technicals are worth considering when purchasing new positions (we like to “buy low” and when technicals are in our favor) and to a lessor extent when selling existing positions (e.g. if technicals are driving the price too high relative to valuation, we might consider taking profits and moving to another opportunity).

We’re also cognizant of longer-term market technicals in terms of styles (e.g. growth, momentum, value) and how styles interact with the market cycle (for example, when momentum stocks rise during a bull market—the gains can be extensive and powerful, but so too can they fall hard when sentiment changes).

The main way we monitor technicals is simply by watching the markets and individual security prices every day (this is enjoyable for us) and by reading a lot. However, another way we enjoy monitoring technical conditions is by helping legendary investment manager, economist and technical trader, Jeff Miller, write his weekly “Stock Exchange” report, which always focuses on technical trading with a little bit of fundamental commentary thrown in. This week’s Stock Exchange asks the question: Are We In a Bear Market Relief Rally? And our answer to this questions is as follows…

Know Your Goals: Before you start thinking about short-term technical conditions, first understand what you want to accomplish with your investment dollars. For example, if you’re retired and your goal is to generate income as well as a little growth from your nest egg, you don’t need to go speculating on wild biotech stocks, and you sure as heck don’t need to be “betting the farm” on short-term technical analysis.
Determine an Appropriate Asset Allocation: Again, if you’re retired and your goal is to generate income as well as a little growth from your nest egg, consider a balanced portfolio appropriately diversified among attractive stocks, bonds and cash to meet your liquidity needs.
Pick Good Investments: Once you’ve got your goals and asset allocation down, build an appropriately diversified portfolio of attractive stocks and bonds. At Blue Harbinger, our goal is to help you identify exceptional investment opportunities, and we write about attractive individual investment ideas regularly.
Be Realistic : If you are overconfident in your investment abilities that can lead to too much trading and all the expensive trading costs, mistakes and risks that go along with it. Be sure to avoid The 7 Deadly Sins of Long-Term Investing.
Consider Technical Analysis: Once you’ve got steps 1-4 down, then you might want to consider short and mid-term technical analysis (perhaps even starting with a practice “paper portfolio”) so long as it is consistent with your long-term goals. And once you think your’re ready for this step, this week’s topic of “technical trading” consideration is: Are We In a Bear Market Relief Rally? And you can read this week’s report here.

Lastly, as a reminder, technical analysis is a tertiary consideration for us, behind selecting an appropriate asset allocation and identifying exceptional investment opportunities. Diversified long-term investing is a proven strategy for success.