Knowing What The F** Is Going On In Markets

 

It's amazing how our trading psychology improves when we take the time to step back, review macro markets, and understand what is going on in the heads of large money managers.

Consider the recent stock market:

*  Growth-related sectors have been particularly weak.  Check out the XLK (technology) and XLY (consumer discretionary) ETFs.

*  Value-related sectors have been relatively strong, especially the ones that benefit from lower interest rates.  Check out the XLRE (real estate); XLU (utilities); and XLP (consumer staples) ETFs.

*  The bond market has been strong, which means interest rates are falling.  Check out the BND (bond) ETF.

*  The US dollar has been weak.  Check out the DXY (dollar index).

*  Commodities have been falling.  Check out the DBC (commodities) ETF and oil prices.

Macro markets do not always trade thematically.  When they do, smart traders pay attention.  You can work on your psychology 24 hours and, if you don't understand market themes, you'll eventually get run over and lose money.

Going forward, a key question to ask is whether the theme of growth slowdown and potential recession is expanding or whether there are signs that the market's "theme-ness" is reversing.  Aligning shorter-term trading with the market's bigger picture helps ensure that you're swimming with the tide, not against it.

Further Reading:

The Importance of Understanding Global Macro Themes

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