Thursday, September 05, 2019

Communicating With The Market We Are Trading

One of the topics I take up in the new book is how we interact with the markets we trade.

As the above quote suggests, too often people engage in conversations in order to make their points and say what *they* want to say.  In that mode, it is difficult to listen in a truly open-minded way.  Most of us have had the frustrating experience of trying to carry on a conversation with people who talk at us, rather than with us.

Traders are among the worst culprits in this regard.  They don't truly look at what the market is doing; they look for their next trades.  In their relationship to their markets, they aren't good listeners.  They are too busy getting ready to "reply".

A great way to listen to the stock market is to track the various sectors within the market and see what they are doing.  Are they moving predominantly in one direction (a trending market), or are they doing very different things (a rotational market).  A nice tool in this respect are the technical rankings of individual stocks and sectors on the Stock Charts site.  When we see sectors with very different rankings and charts, it's tougher to make the case that we're in a bull or bear market.

Recently we've seen great strength and new highs from utilities stocks; consumer staples issues; and real estate shares.  Lagging have been international equities; regional banks; small and mid cap shares; and many energy-related funds.  Dividend and large cap names--traditionally defensive havens--have been strong; perhaps not surprisingly in a world of rapidly falling yields.  This rotational environment has frustrated many traders attempting to trade the overall market directionally.

An excellent exercise is to look at the market from the ground up, sector by sector, and *then* formulate an overall market impression.  When we operate top-down, it's all too easy to impose our predictions and expectations on the market.

Further Reading: