Follow price

Not headlines EDITOR’S NOTE: I’m sharing some market analysis from the team over at Avalon today. From time to time, I like to give you a behind-the-scenes look at what clients at money management firms come to expect from their investing teams. “If people weren’t wrong so often, we wouldn’t be so rich” – the immortal words of the legendary investor Charlie Munger. Charlie passed away on Tuesday at the age of 99. For those of you who don’t recognize the name, Charlie Munger was best known for his fundamental analysis alongside another legend… Warren Buffett. Together they built Berkshire Hathaway into the juggernaut it is today. When Charlie spoke, people listened. If you never had the opportunity to hear Charlie speak, he had the ability to break down the complex into its basics. To use a very common sense approach to investing. And his take on human behavior, particularly investors' propensity to make poor decisions was spot on. Charlie was often quoted – saying the reason he and Warren were so rich was because people are wrong so often. Like it or not, Charlie was right. Human nature hasn’t changed all that much. The average investor out there still gets it wrong. But you don’t have to be one of them. You see, when it comes to human nature it still comes down to two competing forces – fear and greed. And as the saying goes, most people are greedy when they should be fearful and fearful when they should be greedy. And 2023 has been no exception. It’s been a year dominated by sell-side analysts and market pundits declaring that rates will hit 12%, a recession is imminent, inflation is here to stay, we’re heading for another banking crisis, and events in the Middle East will lead to WWIII. Does any of that sound familiar? It’s of little wonder why investors have been so pessimistic. So fearful. When in fact it’s been a time to be greedy. Why? Because all those Wall Street analysts couldn't have been more wrong! Anyone who told you to sell stocks because of a war, or a recession, or inflation, has embarrassed themselves. The S&P 500 has returned over 20% this year. The Nasdaq 100 has returned over 46% for 2023. And the Dow Jones Industrial Average is less than 2% from a new all-time high. Yet so many investors, large and small, have not been allocated properly. They were scared. They listened to sell-side analysts and the talking heads. Let that be a good lesson and a great reminder today from the legendary Charlie Munger. I don’t listen to headlines. I haven’t watched CNBC in years. And I’m happier for it. For me, the only thing that pays is price. The rest is just noise most of the time. Follow price, not headlines. What has price been doing? Well, after a tough August, September, and part of October, stocks rebounded, just as they often do this time of year. Chart after chart looks the same. Stocks have broken out. Here, both the S&P 500 Index and the NASDAQ 100 (QQQ) are breaking above their respective down trendlines. Take a look at Google… Industrials look a lot like the charts above, as they too break out of downtrends from the July highs to October lows. You can find plenty of charts that look just like these. Now, will they go up in a straight line? No, of course not. As a matter of fact, many are currently consolidating sideways – digesting their recent gains. Perfectly normal behavior. Step back and look at this from a broader perspective. What do we have going in our favor? From a seasonality perspective, we are in the best three- and six-month period to invest in stocks. November to January are the best three months, and November to April are the best six months to invest. And both the pre-election year and election year of a Presidential cycle are the best years for the stock market. Breadth continues to improve – meaning more and more stocks are once again above their 50-day and 200-day moving averages. As a rule, we want to see at least 50% of stocks above their 200-day moving average in a bull market. Then there’s the Dollar. In October (10/3/23) the U.S. Dollar peaked. That was the same day the new low list for the NYSE peaked. The dollar and stocks have been negatively correlated for quite a while now. Dollar down – stocks up. Take a look at the performance of the major indexes since the Dollar last peaked. But in spite of all the data, many people have not participated in 2023’s performance. It’s like Charlie said. Most people don’t do the right things. For me, most people focus on the wrong things… They miss the single most important thing to watch. Price. Prices continue to trend higher – that’s fact, not opinion. Historically, we’re in the strongest six months of the year for stock market returns. It looks as though this trend will continue as we move into the new year. The question is – will you participate? At Avalon, we’re focused on educating you to see the markets the way we do, and Relative Strength is the cornerstone of our investment process. For over 20 years, we've researched and tested the Relative Strength strategy we offer our clients, and we’re happy to be able to bring you along for the ride too. Our free newsletter ADAPT delivers weekly updates on our firm’s strongest performing investment method, plus market insights from a responsible money management perspective – not just one-off stock ideas. We also offer intel on major shifts in the stock market and asset classes to help you make more informed investment decisions. [Click to subscribe and join us now]( – we’ll also give you our three most popular downloadable ebooks for free when you sign up. 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