re: Gauging market sentiment; news; sector rotation -
<in the valley, is that MCOM?>
ynot, Yes, according to YHOO finance, MCOM is Metricom's NASDAQ symbol; however in my chart package tonight I'm pulling up a chart for 'Midwest Communications" using that symbol. Hmmm, further research required.
<how do you gauge sentiment?>
Good question, as I'm sure you know, one of the big keys to trading is understanding the market sentiment. Going into an individual stock, is a lot like sailing to Hawaii in a small sailboat - you'd better check the weather! So, I consistently work hard to develop a "feel" for the market sentiment. You either have it or you don't, and it's hard to hold on to without devoting a lot of time to the market. I find that it does come naturally if you follow the major indexes at least a few times a day, and on the day chart every evening, in your post-trading work. Among the major averages, I watch the DJIA, the SPX & SP's (broader mkt; S&P 500 Cash & Future indexes; the Nasdaq Composite (COMPX) or Nasdaq 100, as well as the major strength indicators including advance/decline (breadth), the TRIN (KEY for knowing risk levels, see www.pristine.com for whitepapers on that), and TICK (not as good as the S&P Futures, but a cheap substitute intraday re: market strength). Technical analysis works very well on the averages, plus you have to watch the major news like what the Bonds (interest rates) are doing. A lot of times, the Bonds, which are a much bigger market than the stock market, drag the stocks around by their nose (read Larry Williams on that; he has it right). At other times, other factors dominate the market's direction; the trick is always to figure out what. Sometimes nothing does; that can be either very good, or very bad! The only thing really certain about the market is, it can do whatever it wants at just about any time! So it's an imprecise game to read it,for sure. But, you can push the odds in your favor by paying attention. Nowadays, of course, the Nasdaq and the Techs are like a separate market from the DJIA, but you need to watch both to get a feel for the coupling, or lack of it, or sometimes the de-coupling. Now, the internets are like another market within the NASDAQ; they trade on their own rhythm; but definitely more closely related to NASDAQ (often leading it). Finally, I've learned a lot about reading market sentiment by trading the S&P Futures full-time for almost a year (not recommended, unless you like self-torture ;). I had better luck trading OEX options, I strongly recommend that, but keep each trade small (1-3 OEX's is a nice number). This will give you a good market feel.
<Do you factor news>
Yes, but remember in individual stocks price almost always proceeds news (see Jeff Cooper, he has this completely right). You can just ignore individual stock news a lot of the time, because the big money usually knows beforehand, so it's too late to do much with (that is probably a bit of an exageration, but it's close). The point is, all you need is the chart in front of your eyes.
<what about sector rotation>
I will do a 'post' on using sectors to your advantage in daytrading, sometime soon. I believe that this is an important topic that is often ignored by many short term stocks traders. I strongly recommend developing your own sector model. Personally, I have the stock market subdivided into about 30 different sectors which I look at every evening, and scroll through a few times a day. I focus by far the most on the techs, where my sectors are more granular; however I watch all the major sectors including Banks/Brokerages/Insurance; the Oils; Retail; etc. The market is much easier to make sense of when you watch it by sector; generally the stocks within a sector will move together. More importantly, you can just pick 1-2 higher-quality (stronger or weaker relative strength) stocks within a sector to trade. By doing this, and filtering the charts to the more interesting setups, I can get the # of stocks I need to watch intra-day, down to 15-20 issues. That helps a lot, and allows you to trade the best ones.
Good trading, -Steve |
