Is the stock marketplace probable to accept out its previous day's highs? Are nosotros probable to exam or intermission the prior day's lows? These are the questions I typically inquire during the opening minutes of trading. As the twenty-four hours unfolds, I sentinel short-term reckon (NYSE TICK, Market Delta) in addition to the behaviour of diverse marketplace sectors to handicap the odds of making diverse moves during the day.
Lately, much of the odds direct keep boiled downward to whether the marketplace is trading inwards what I telephone squall upwards "recession mode" or "recovery mode". In recession mode, at that topographic point is risk-aversion alongside stocks; inwards recovery trend nosotros encounter get produce hunting alongside the hardest hitting sectors. The 3 themes I've institute nearly helpful inwards tracking these modes are:
* Performance of the Financial Sector Relative to the Broad Market - I await at the banking sector ($BKX), the S&P 500 fiscal sector (XLF), in addition to private stocks that direct keep been vulnerable (LEH, MER, C, FNM). When the fiscal stocks are weak, the marketplace is inwards its risk-averse, recession trend in addition to I anticipate selling inwards the wide market;
* Performance of the Housing Sector Relative to the Broad Market - I await at the homebuilders ($HGX), simply too regional banks (KRE), every bit those direct keep exposure to loans to struggling housing developers. When the housing sector is weak, the marketplace is risk-averse in addition to anticipating farther recession.
* Performance of Consumer Staples Sector Relative to the Consumer Discretionary Sector - When the marketplace is anticipating recession in addition to inwards its risk-averse mode, nosotros encounter coin going into the to a greater extent than recession-resistant staples stocks (XLP) in addition to away from the discretionaries (XLY).
Today all 3 themes kicked into their risk-averse, recessionary modes. That was a corking enjoin for the day's direction. I suspect these themes volition too attention us position whatever eventual turnaround inwards this weak market. As long every bit traders in addition to investors anticipate farther bad intelligence in addition to losses from banking in addition to housing, however, they volition remain defensive--and that poses pressures for the residue of the stock market.
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