Trend followers operate scientific research labs. Their research materials are financial data (that means price data). The financial markets are their laboratory. The great benefit to price analysis? You can’t cook the books so to speak as the market price is what it is for everyone to see. However, tonight I caught a financial analyst pushing something quite opposite of trend following. Here were some of his value driven pearls

Spend time trying to find good companies with strong balance sheets in industries with lousy pricing power, and cheap companies in good industries, where the trends are not fully discounted.

Purchase equities that are cheap relative to other names in the industry. Depending on the industry, this can mean low P/E, low P/B, low P/S, low P/CFO, low P/FCF, or low EV/EBITDA.

Stick with higher quality companies for a given industry.

Purchase companies appropriately sized to serve their market niches.

Analyze financial statements to avoid companies that misuse generally accepted accounting principles and overstate earnings.

That’s enough for me. The list goes on and on (that’s the edited version). So much of Wall Street, and it has been this way for 100+ years, is either all subjective analysis and or all opinion. Those make-you-feel-like-you can-actually-do-that-analysis-but-never-will bullets are no different. Buyer beware.

One inventive fellow, attempting to base his hedge fund around tweets, tossed this gem out:

“If you can do this [follow tweets] it gives you a massive edge on the market as you know the mood.” The principle lies in analyzing the 120 million tweets, which are posted daily by the 180 million-strong Twitter members and looking for mood states. Using an algorithm which works in real time, it divides the information into six mood states–anxious, calm, and sad for example–giving them an overall reflection of how the world is feeling.

Of course, this type of silly talk is not new. People have been leading and misleading each other since the dawn of time. You jump into that game, you get what you get, win or lose.

Caught this excerpt floating in the ether:

Now the message is similar, except that all of the worries over European debt problems have pushed T-Bond prices up even higher toward “expensive” territory. And now with a deal reportedly getting worked out between Greece and its creditors over the size of the “haircut”, traders are concluding that the supposed safety of T-Bonds does not merit as much premium as it used to.

At the same time, commercial traders of both T-Bond and T-Note futures are getting to a point of being net short in the biggest way that they have been in years. Commitment Of Traders (COT) Report data is something that I address every Friday in the Daily Edition. And commercial traders are also net long the euro in the biggest way in the history of that future contract. So the big smart-money traders are betting on a euro rebound and a T-Bond selloff.

Want to bet off that?

Caught this comment floating in the blogosphere:

I agree that we are heading to 1370+. However we are very close to a correction of 5% or more to finally launch that last run. Being long here for the 70+ points is not bad in the long run but for ST you could be looking at a significant draw downs. This to me is analog to 2010 so I will play it accordingly.

No fight with whoever penned that. No gripe. No hate. Just a big head scratcher from me that so many think like this. James Brown had it figured out a long time ago–at least the part about talking loud and saying nothing.

Your life will be much nicer over the long haul if you read something like this and know that Kass has no more clue about tomorrow …than you do.

Some light reading that you should not bet your cash on:

The Year Of Living Dangerously
Iran Invasion

Do you really care? Should you care? Can you really do anything about it? Here is the deal: have a plan for whatever happens, but living in fear is wasted time.

I say, “yawn.”

The line “I Wanna Be Your Dog” sure sums up what investors tolerate today (i.e., ZIRP, bailouts, MF Global, etc):

Caught this line today:

“One of the more aggravating aspects of the current market is it’s news-driven nature, the market is just overwhelmed on a regular basis. Open a position, make a few bucks, and get out before the news takes it away. Trading between the storms.”

News driving a market is not novel. And trying to trade news has never been successful strategy.

Former Google CEO Eric Schmidt:

“There are many, many things that Google could do, that we choose not to do. One day we had a conversation where we figured we could just try to predict the stock market. And then we decided it was illegal. So we stopped doing that.”

Google is a great search engine. It won the title of search king, and Schmidt has made a fortune. Congratulations. However, when he opines like that, he sounds delusional. Schmidt might be worth billions, but wealth does not make up for a lack of common sense.

He is one of many.

A group of eminent economists recently apologized to Queen Elizabeth II for failing to predict the financial crisis:

“In summary, your majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”

What did the Queen think when she received that? Did she believe it? Did she know better? No one can absolutely know when a market will move and trend. Do you have to know to profit? No.

From the wires:

Shares of Netflix, Inc. (NFLX) hit a new 52-week low on Monday. The stock traded as low as $73.26 during mid-day trading and last traded at $73.85. The stock previously closed at $78.06. It has a 52 week high of $304.79.

Some very smart people bought into the Netflix story (just like 1998-99). Remember, exit strategies are for the feeble. It always feels better to hold on as a stock heads to zero. Who cares if it comes back! Heavy sarcasm.

From MarketWatch:

…two technical areas stand out: Major support spanning from 1,220 to 1,230. The S&P bottomed last week at 1,226. Resistance at the 200-day moving average currently 1,271. The S&P has topped at 1,267 on the recent upturn. So very simply, the S&P and the Nasdaq are compressing between major support and the 200-day moving average.

If you were considering the possibility of trend following trading please be aware that the seemingly fundamental analysis of technical analysis in that article is not trend following. Let go of trying to find an explanation for every situation. You don’t need to know that to profit. And you can’t predict tomorrow anyways.