Sometimes markets trade in uniform, coherent ways that we call trends. Other times, markets move up and down in seemingly random ways. We call those markets choppy and see them as difficult or even impossible to trade. But what if markets, like people, make their own sense during the times when they seemingly flit from up to down and back again?
The "choppy", range-bound market may be one that is trading with a dominant cycle. It may be trading non-directionally, but continuing relative strength versus overseas shares. It may be in a range itself, hiding relative movements of individual market sectors. Perhaps growth stocks are strong and value shares are weak. Natural resource stocks are strong, rate-sensitive issues are weak. Large caps are weak, small caps are strong. Very often, beneath the "choppy" chart are real themes that can be traded.
But we have to listen and look beneath the surface. Like the psychologist, we have to be sensitive to themes behind what seemingly doesn't make sense.
Many, many times we develop a narrative--a view--and then become frustrated when the markets don't follow our story. Can you imagine a psychologist operating that way?
If we can take our egos out of the picture--our desires to make the big market calls--we can open ourselves to what markets are really doing and trade accordingly. It all begins with a simple question, "What is the theme here?"
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