Skip to main content

Gaining Perspective on Markets by Shifting Perspective

Almost by definition, if you're pursuing your own, unique path--in life and in markets--you are going to face uncertainty.  If we live life solely by following tradition and consensus, we'll find the security of the known, but will never have the adventure of finding our own path by tackling the unknown.

As the recent post outlined, successful trading is all about standing apart from consensus and finding unique perspectives and edges in financial markets.  But if you pursue uniqueness, you'll pursue uncertainty--and that requires a tolerance of what is uncomfortable and unfamiliar.

Two ways of gaining perspective on markets are microanalysis and macroanalysis.  In microanalysis, we break a market down into smaller pieces and look for clues to future activity based upon the patterning of those pieces.  So, for instance, I might look at the alignment of sector behavior within the SPX to gain clues as to what is strong, what is weak, and what the patterns of strength and weakness might mean for the economy and stocks overall.  A different form of microanalysis would be to break the price action of a stock or index into intraday pieces, as in the case of tracking volume flows or upticks/downticks over short intervals.  Many times, beneath the surface, we can see evidence of accumulation or distribution that gives us a clue as to forward market behavior.

Macroanalysis, on the other hand, places market activity in a broader context and looks for patterns among larger variables.  We could aggregate global economic data, for example, and infer patterns of growing global growth and weakness that could impact the behavior of stocks.  Similarly, we could look across the policies of world central banks and assess whether monetary conditions are skewed toward liquidity or tightness.  In macroanalysis, we might view SPX as a sector itself within the broader universe of global equities.  For example, since 2015, the correlation between daily moves in shares in Europe, the Far East, Australia, and Asia (EFA) has been about +.84 with the daily moves in the U.S. (SPY).  The correlation between daily moves in emerging markets (EEM) and the U.S. (SPY) has been about +.80.  Quite simply, markets are global and what happens in one part of the world is tremendously relevant for other parts.

If you find markets are unclear and/or you find yourself trapped on a consensus path, very often the answer is to take a fresh look through a microscope or a telescope.  Looking beneath the surface of market activity by zooming in on short-term patterns can bring clarity.  Stepping back from day to day activity and focusing on the big picture can also bring fresh understanding.  To gain perspective, we have to shift perspective.  Microanalysis and macroanalysis are two ways of accomplishing that.  It is difficult to stay stuck in a perceptual rut if we have many microscopes and telescopes available to us.

Further Reading:  Market Profile as a Fresh Perspective on Trading
.

Comments

Popular posts from this blog

Austerity-A Fancy Word for Destitute.

The reason for this post is not for the folks who have been caught in the first wave of personal economic hard reality, but the next wave. Regardless of the optimism espoused by grinning leaders and sycophant press, we are entering the final stage of global economic collapse. It began in 2008 and was forestalled for five years with fudge putty, but the weight of global indebtedness cannot be propped any longer and the final crunch is imminent. Austerity measures herald the final throes.  Indications of coming austerity.   Austerity measures are the final last ditch effort, futile or not! Back in the day many of us old-timers went through periods of "hard-times". In retrospect I realize there is no comparison to yesteryear hard times and today's version. Back then, expectations were never very high for the working class, there were no sophisticated systems or conveniences anyway. In fact the difference between being "set" or not was about having treats or not. Si...

Terrifying Arctic methane levels

A peak methane level of 3026 ppb was recorded by the MetOp-B satellite at 469 mb on December 11, 2021 am. This follows a peak methane level of  3644 ppb  recorded by the MetOp-B satellite at 367 mb on November 21, 2021, pm. A peak methane level of 2716 ppb was recorded by the MetOp-B satellite at 586 mb on December 11, 2021, pm, as above image shows. This image is possibly even more terrifying than the image at the top, as above image shows that at 586 mb, i.e. much closer to sea level, almost all methane shows up over sea, rather than over land, supporting the possibility of large methane eruptions from the seafloor, especially in the Arctic.  Also, the image was recorded later than the image at the top with the 3026 ppb peak, indicating that even more methane may be on the way. This appears to be confirmed by the Copernicus forecast for December 12, 2021, 03 UTC, as illustrated by the image below, which shows methane at 500 hPa (equivalent to 500 mb). Furthermore, ...

Women and children overboard

It's the  Catch-22  of clinical trials: to protect pregnant women and children from the risks of untested drugs....we don't test drugs adequately for them. In the last few decades , we've been more concerned about the harms of research than of inadequately tested treatments for everyone, in fact. But for "vulnerable populations,"  like pregnant women and children, the default was to exclude them. And just in case any women might be, or might become, pregnant, it was often easier just to exclude us all from trials. It got so bad, that by the late 1990s, the FDA realized regulations and more for pregnant women - and women generally - had to change. The NIH (National Institutes of Health) took action too. And so few drugs had enough safety and efficacy information for children that, even in official circles, children were being called "therapeutic orphans."  Action began on that, too. There is still a long way to go. But this month there was a sign that ...