The numbers don’t lie …

Kevin Lane is one of the founding partners of Fusion Analytics, and is the firm’s director of Quantitative Research. Prior to joining Fusion Analytics, Mr. Lane enjoyed success as the Chief Market Strategist for several sell side institutional brokerage firms, where he made unique and savvy market predictions. In those capacities he oversaw the firms’ research departments and was the main architect for developing their proprietary stock selection models and trading algorithms. He produced a broad range of widely followed institutional research publications ranging from industry specific notes to quantitative/fundamental reports on individual stocks. His buy side clientele consisted of many of the nations top money managers and hedge fund managers. Mr. Lane is a member of the Market Technicians Association.

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The Numbers Don’t Lie …

The reason we like statistical and technical analysis is for one simple reason, the number don’t lie. The numbers are unemotional, they don’t fall in love with stories, the don’t get passionately bullish or bearish they just are what they are. Now the downfall of the numbers like any method of following the market is they are nowhere near perfect (but then again what is ?). However the numbers are a direct reflection of the market, they are not manufactured or manipulated. Again they are what they are and in that’s the beauty of it.

When we say “the numbers” we talk about things such as new highs vs. new lows, advancing stocks vs. declining stocks, the continuous level of up volume versus down volume, the deviation in the VIX Index from its normal trend to name a few. Within FusionIQ we monitor even statistics such as the % of stocks that are in various scoring ranges such as; Bullish (stocks ranked 70 – 100), Neutral – (stocks ranked 40-70) and Bearish (stocks ranked less than 40). We also monitor the number of new BUY signals vs. new SELLS signals to see which way the markets near-term directional bias is tilting. Again not that these are perfect indicators but when they all start to align in either a bullish or bearish way it gives you a higher degree of confidence that you are on the right side of that market and that is what this game is all about. Stock picking to some degree is only as good as which way they market tide is going. (Though you will always get a few names that buck the trend the majority of issues move in sync with the market)

In fact one of the main determinants that moved us negative very early was the large number of stocks ranked in FusionIQ that fell into its bearish category six and nine months ago. Again not that the numbers are always right but when 65 % of all stocks in our ranking system are ranked lower than 40, that has to raise a red flag. As I said before we don’t make the numbers but the fact that a large number of issues went below 40 rankings (the scores were clearly driven down as we know now by external factors as well as supply and demand) certainly demanded attention. When readings such as this are combined with other pieces of unbiased confirming evidence such as new lows every day in the cumulative advance-decline line for the S&P 500 and more new 52 week lows than 52 week new highs (consistently) it really connects the dots.

That said most of these aforementioned indicators still have poor readings hence why we keep repeating that one should play it closer to the vest for now and make lighter capital commitments until these statistics improve off the lows .

Look for out S&P 500 and NASDAQ 100 pieces to be published this coming Monday.

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