Why Tactical Isn’t Working – Part IV (QE-Infinity And Beyond!)

<< Read More: Why Some Tactical Strategies Aren’t Working Very Well – Part I 

<< Read More: Why Some Tactical Strategies Aren’t Working Very Well – Part II

<<Read More: Why Tactical Isn’t Working – Part III (Everybody’s Doin’ It)

With the markets (a) stuck in what I’ll call price discovery mode in relation to the idea that we are seeing the beginning of the end of the QE Era and (b) in the middle of what has historically been a seasonally weak period for stock prices, I’m going to spend my time this morning continuing our series on why tactical/technical strategies have not fared well in recent years.

So far, we’ve established that many tried and true stock market indicators have disappointed investors looking to be long the stock market when the bulls are running and to take defensive measures when prices fall. There can be little argument as to whether this scenario is playing out as most folks I know using a tactical approach to the market have experienced a rather long period of underperformance. The key question is why is this happening?

I have opined that there are three primary reasons for the struggles in tactical trading arena. I titled these reasons, “Everybody’s doin’ it,” “Global QE,” and “The rise of the machines.”

Last time, we explored the idea that everybody on the planet now employs technical analysis and price/trend tools in their work. I suggested that the popularity of moving averages, trendlines, and support/resistance zones, which together are the crux of a trend-following approach, has led been their downfall.

This morning, I’d like to spend a few minutes talking about the role the global central bankers have played in this issue.

Just What Is QE Anyway?

To be clear, what I’m about to present is an oversimplification of a very complex issue. But the premise is still pretty straightforward. When global central bankers buy bonds on the open markets (a tactic called “quantitative easing” or “QE” for short), they are doing two things. First, they are trying to push bond yields lower. And second, they are “expanding their balance sheet” in the process. This means that the central bank in question is basically printing money (a term I’m using loosely here) in order to make the purchase of the bonds.