3/9/2025 – The best option to work in your buying and selling is to determine themes in your P/L. Suppose you break down your P/L by market situation: rising markets, falling markets, vary markets, risky markets, quiet markets, and so on. Suppose you break down your P/L by *what* you’re buying and selling and by the patterns you are buying and selling. Suppose you break down your P/L by time of day, by whether or not you have been worthwhile or not on the time of the commerce, by the commerce dimension, and so on. What is going to occur with these breakdowns is that you will determine patterns in your buying and selling: what you are doing nicely, the place you are falling quick. Earlier than you possibly can work on what’s incorrect together with your buying and selling it is necessary to diagnose what’s working and what is not. Many instances the reply to buying and selling issues is to remove what is not working and do extra of what you do nicely. An analytical journal akin to Edgewonk may be very useful find the themes in your buying and selling.
3/7/2025 – So what’s the dominant theme within the present market? Many merchants would level to the autumn in U.S. shares and, sure, that has been important. I might argue, nevertheless, that the extra dramatic and probably troubling theme is the current decline within the U.S. Greenback. (Observe, concurrently, the steep rise in the Euro and the British Pound. The Swiss Franc has been rising, as has the Japanese Yen). I discover the Barchart website useful in monitoring all this. In case you are a cash supervisor, asset allocator, funding financial institution, or sovereign wealth fund, there is no such thing as a extra direct option to vote for or towards an financial system than via funding in (or divestment of) that nation’s foreign money. The prospect of tariffs and layoffs, mixed with the current sense of quickly altering decision-making, could also be undermining confidence within the U.S. financial system. The autumn in Treasury yields accompanying the autumn within the Greenback suggests financial weak spot and the eventual risk of a minimize in rates of interest from the Fed. See additionally the weak spot in shares delicate to discretionary client spending. The problem of change–personal in addition to economic–is to make it each highly effective and sustainable.
3/6/2025 – What portfolio managers sometimes perceive and particular person merchants usually miss is that volatility is an asset class. There are methods of buying and selling volatility (particularly via choices constructions), simply as there are methods of buying and selling directional worth motion. What’s extra, not solely has volatility ($VIX) been ramping up these days within the US inventory market, but additionally the volatility of volatility ($VXX). In different phrases, volatility itself has been shifting round fairly a bit. That’s resulting in giant whipsaws available in the market. It is necessary to determine themes within the inventory market, it is necessary to determine themes in particular person fairness sectors, and it is also necessary to determine themes in volatility. The “setups” that work in a low volatility market should not essentially the identical as people who apply to a better volatility market. The patterns we search for in a secure volatility market should not people who essentially apply to a shifting volatility market. We have to determine all the themes occurring now, examine how markets have responded to these themes, and create what Mike Bellafiore calls “playbooks” that apply to the market we’re in.
3/5/2025 – A key buying and selling talent is figuring out themes early of their unfolding. As soon as the theme is clear and well-subscribed, it’s usually topic to reversal because the latecomers are squeezed from their positions. Yesterday I heard lots from merchants concerning the market weak spot, issues about recession and inflation, and so on. Simply a few days earlier, the dialogue was way more about shopping for weak spot, enjoying for the bounce, and so on. No query, we’ve got seen increasing weak spot within the U.S. inventory market. Small caps (IWM) and client discretionary shares (XLY) have been significantly weak. Certainly, yesterday we had nicely over 2000 shares on the NYSE make recent one-month lows. When that has occurred prior to now, outcomes have been combined within the close to time period, however comparatively sturdy 20+ days out. Most notably, the close to time period outcomes (3-5 days out) have been very risky, with giant beneficial properties and huge losses. Additionally throughout the NYSE yesterday, we had fewer than 20 shares shut above their higher Bollinger Bands. That absence of weak spot has been related to favorable returns (bounces) over the following few days. What all that is telling us is that market themes have a shelf life. After they develop into apparent, that’s when continuation turns into much less sure.
3/4/2025 – One factor I’ve discovered from working with portfolio administration groups for a few years is that they assume thematically. They do not simply have a look at particular person charts and determine upon entries and exits. Relatively, they scour a wide range of markets and see how they’re shifting relative to at least one one other. Within the patterns of power and weak spot, themes emerge which can be very related to financial development, stability, and weak spot. The primary method of figuring out themes is within the relative motion of varied inventory market sectors. For instance, check out the buyer discretionary sector, XLY. It topped out in mid-December, nicely forward of the general SPX index. Observe how the uncooked supplies sector, XLB, topped out even earlier and is nicely off its October peak. Power shares (XLE) are off their late 2024 highs, as are the economic shares (XLI). Simply through the first a part of the 12 months, we have seen the defensive client staples sector (XLP) outperform the previously scorching know-how sector (XLK). All of this means a diminished emphasis on financial development.
Discover how there’s a sample to all this: First we see diminished participation when the broad index makes marginal new highs after which we see *modified* participation as bear market exercise commences. The relative motion of the inventory market sectors tells us whether or not the themes dominating buyers are associated to development or defensiveness; whether or not we’re seeing broader participation or diminished participation. Charts may be very useful in figuring out factors to enter and exit whenever you get to the purpose of executing your trades. Nevertheless it’s themes that present probably the most dependable data re: *what* and *how* you have to be buying and selling.
Additional Studying:
Understanding Market Themes From Sector Breadth
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