The stock market has been moving lately.  Up,  down, side-to-side, every movement can launch a thousand stories, but lately I’ve seen a lot of stories pop up of how someone should invest in this market and where they should put their money.  I’m not going to say I have the answers to this question, or even the knowledge of how to find the answers, but I’ll lay out the facts of where I think you will not find the answers.

As an overview, the market is down somewhere between 20% and 25% since January.  If you think the market is going to keep going down, you’d be advised to sell your stocks and hold them as cash until the market reaches a bottom and starts going back up.  If you think we’ve reached the bottom you’d be advised to buy more stocks and rake in the profits as the market goes back up.  There’s arguments for both, but some arguments that feel unsatisfactory are those based on technical analysis.  I don’t mean to be unkind, I know many people swear by TA, perhaps even some of my readers, but TA reminds me of something else I know too much about: exegesis.

Exegesis of the bible or any other holy book is supposed to mean explaining the passages so that your target audience will better understand and act upon them.  The problem is you can make exegesis say whatever you want, because ultimately your explanation is entirely up to you.  When Jesus said “a rich man cannot enter the Kingdom of Heaven anymore than a camel can pass through the eye of a needle” what did he mean?  An exegete can claim that this is a metaphor, that the eye of a needle is a metaphor for a very narrow gate which a camel overloaded with goods would not be able to pass through, so a rich man needs to give away some of his wealth to charity and then he can enter the Kingdom.  Another exegete would say that this isn’t a metaphor, it’s a plain statement emphasized with sarcasm.  A camel cannot pass through the eye of a needle, that’s just dumb, and so Jesus is saying a rich man cannot enter the Kingdom no matter how much he gives to charity.  We can’t know exactly what Jesus meant by this because we can’t call Him up and ask Him.  And there are hundreds of passages in the bible that an exegete can claim to mean whatever they want them to mean, as long as you define enough things as being metaphors or sarcasm or straight facts in order to defend your argument.  Exegesis is a way of creating whatever meaning you want out of Scripture.

Technical Analysis seems to do the same thing with stock market trendlines.  The line is going down, are we “testing support” and will soon break through to go even lower?  Or are we “finding support” and will bounce off to go higher?  You can draw the future trendline however you want, and I’ve honestly never heard of a cogent argument proving that some form of TA is true more often than any other form, or is true more often than a random coin flip.  I’ve seen both bulls and bears quote their TA studies to support their points, and yet I’ve never seen the kind of scientific analysis that can prove the methods to be useful.  The counterargument is that many people, some of them very wealthy and successful stock traders, use TA to build their portfolios and so TA must be useful otherwise those people wouldn’t keep doing it.  My response would be that TA is no more accurate than random chance, and since the market is not zero-sum and rises on average ~7% per year, many people can become supremely wealthy based on this random chance while believing they are beating the market.  I don’t know, it all just seems like wishful thinking, and I’d love to be directed towards some studies discussing the efficacy of TA as a strategy.