Have you heard of such a Jesse Livermore? They say that back in the first decade of the 20th century, it existed in Wall street a market magician named Jesse Livermore. He was the magician of the market and a true star.
Such was the magnitude of his fame, that in a context conducive to developing the largest stock market bubble in history, the good guy from Livermore was somewhat more like a rock star than a stock investor. Not surprisingly, we all know the need for Americans to have historical myths. For lack of history, Elvis Presley! But as John Lennon said, before Elvis nothing existed and he was partly right.
In this context, the figure of the most legendary trader in history emerged and probably the father of everything. Maybe that’s why I like to always paraphrase the good Lennon with that before Livermore, nothing existed.
Livermore taught us that to master trading you don’t need to analyze balance sheets or charts. He read the telegram and memorized the ticker of quotes with a single objective, to define the line of least resistance, that is, control that if prices went up you had to buy and if prices fell get short. Unscrupulous, he knew that if the rise was completed he had to close his positions since the only thing that counts in the market is the trend.
From Livermore is born what is as popular as operating the trend, cutting losses or letting the trend run. True later GRaham taught us to understand the safety margin and that sometimes in the market, it is best to do nothing. Hence, he took a new step in the art of investing with his precious “investor behavior in the face of market fluctuations.”
From Livermore to Graham or from speculation to investment, we have always been taught that whatever happens, you have to stay calm and, first of all, let things happen. In Blackbird we have lived an extraordinary year in 2020, since It is not simple to cohabit with a market like the one we have lived in. They say that the market discounts everything and the truth is that it is partly true, but what is known or at least what is believed.
The virus has not been believed by anyone, not governments, nor markets. Hence, we have experienced the most fatal bullish failure in stock market history, since a crash without a distribution process, after a process of rebuilding the bullish primary trend of more than 2 years, is something that has never happened before in the history of the Dow Jones.
As we well know, the collapse of the Ibex 35, as well as that of all the world’s listed markets, have sunk the stock markets, correcting part of the problem (leverage) and returning prices to a 20-year annualized return, at minimum.
A scenario of panic and capitulation is especially good for the markets and once again, the stock market plummeted when we began to understand the magnitude of the tragedy and began to rise at the worst moment of the news.
After months of consolidation and with an entire doubt about the recovery or death of the markets, the world stock markets have managed to define a pattern of increasing lows and return the main world indices above two thirds of the crash. This pattern breaks the corrective process and clearly speaks of a new impulsive section, which destroys the bears and demonstrates that sometimes in the markets, it is best to stay still.
Our index remains apathetic and weak, as it has been since 2017. However, there is light behind darkness. The world no longer sees banking as part of the problem, rather of the solution. What in 2008 became the leadership of speculative markets, in 2020 could become the opposite.
To recover the productive economy we need to recover the productive fabric and for this, banks have a special function. Business lending can lead to real inflation and investment.
These incentives are necessary for a banking sector that is mortally wounded. It is no wonder that eThe ECB taking out all the artillery has not even hinted at the drop in rates. The ECB has put the cable to the bank, maintaining the idea that their effort in the last decade leaves them especially capitalized, and although it is not surprising that we see a process of mergers in the European sector, current listing prices are hardly we will see repeated.
This is how the market understands it, since the sectorial STOXX600 BANKS, has finally managed to rearm the trend. With banks breaking resistance, Telefónica rising from its ashes and an electricity sector that remains intractable in the heat of energy transformation, the Ibex 35 gains height.
And can we believe these rises? It is true that the Ibex 35 goes to the rear of the world and that risks return to the political plane. But as soon as Europe’s aid and the required reforms are resolved, the market will be tracing a more visible recovery process. It is true that in the short term the stock markets should give a new pull, but what usually happens, after breaking a two-month lateral process, is a consolidation. Consolidation that in case of arrival, of course is to buy it.