Wednesday, February 25, 2009

Tracking Markets by Attending to What Isn't Happening

I was at the airport this morning following the market via laptop and thought I'd add just a few observations to the recent post on listening as a key trading skill.

The good psychologist doesn't just listen to what is said, but also attends to what *isn't* communicated:

* A man says he's doing well, but pointedly leaves out any mention of the problems discussed the previous week;

* A woman talks about being taken advantage of by a friend, but expresses no feelings of hurt or anger;

* A person in trouble refuses to ask for help, afraid of being rejected.

Many times, it's what isn't expressed that offers the best window into the inner workings of a person.

Similarly, what *doesn't* happen in markets is often as meaningful as what does:

* After rallying solidly the previous day, the market cannot trade above its previous day's high;

* In the opening minutes of trading, even on attempted rallies, buying interest (NYSE TICK) fails to reach a single significant reading of +800 or greater;

* The market never trades above its opening price range of the first 15 minutes;

* Volume never expands on attempted rallies, as large traders don't participate in the upside.

It's often helpful to know what markets usually do, because that sensitizes you to those occasions when they behave atypically. When markets fail to provide their usual communications, they're usually communicating something important.