Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.
Takeaways and Observations
Originally published May 25 at 3:22 p.m. EST
Here are some value added posts on our site today:
1. Jim "El Capitan" Cramer-- oil is going down.
Originally published May 25 at 12:10 p.m. EST
As recently as this morning and over the past few months, I have been writing about the notion that equity prices, particularly in leading names (T)FAANG, may be inappropriately valued and artificially bloated by mechanical quantitative strategies that allocate based on patterns and correlations.
If you spend a few minutes on the multiyear stock charts of (T)FAANG, it is abundantly clear that risk levels have been raised, arguably by the aforementioned domination of quant strategies.
Now to the psychology of this phenomenon and why it is so worrisome:
Any price level, no matter how bizarrely unrelated to any supporting value, if sustained long enough by technical market forces, will begin to appear to be completely safe and a rational level at which to buy. Too many now resemble the Pavlov's dogs of the market, and if food keeps coming no matter the shock, we will begin to act as if the shock is a pleasure.
I can't remember all the times (throughout my career) the chart seemed to say I was being presented by a "modest pullback" to what looked like a "support level" because it had traded there for a while--only to later be stunned by the massive drop down and away from that "safe level where everyone is buying."
Activity at any price level does not necessarily reflect rational, sustainable, long-term interest by real investors. Just think about Xerox (XRX - Get Report) and Avon Products (AVP - Get Report) during the Nifty 50 period, the numerous and now defunct stocks embraced during the dot-com boom and/or the price of banks and insurers back in 2007-08.
Think about these observations, as they might save you a lot of pain in the near future.