Tag Markets

Posts: 3

Market Trends

Identifying market trends is like eating and drinking the Zeitgeist. It has to be inside you to understand it. You have to be social, go outside, go to parties, etc. If you're not "hip" then you'll never see emerging trends until they're already established. Then it's a matter of chasing their coattails and riding them for a bit.

Years ago Howie had a great tag-line for his blog, it was "Trends… Find them, ride them and get off." I thought that was a great way to frame the problem and represent one way to generate "alpha" for the short term. Get in on a trend before it takes off and then ride it up (or down). The next trick is getting out, as Howie so eloquently puts it, "ride them and get off."

Identifying Trends in Stocks

Trend following in stocks has been around ever since a market has existed. Tulips anyone? It's super easy to do if you access to a computer. All you do is load up your favorite stock, set the time period to daily or weekly, and it should become readily apparent which way the trend is going.

TRTC, 11/25/2019

Some traders and investors like to use moving averages, usually the 50 and 200 day/week moving averages to confirm that the stock is trending higher or lower. Since I like to be positive, I really like up trends relative to down trends, but both are very useful for things happening in the social sphere (see below).

Identifying Social Trends

This one is trickier because because it requires you to leave your computer screen and go out into society. You need to observe, read, mingle, and talk. I know that this can be tough for introverts - and a lot of good traders/investors I know are introverted - but you have to put on your social shield and go out.

Having kids is good too, or at least access to nieces and nephews. You can ask them what all the kids are buying or having bought for them. What are they playing, what's cool, etc. Right now it's Fortnite, Discord, and iPhones. This is how I learned about the Minecraft craze and ended up going long in Microsoft. Granted, Minecraft is now "so old" but it's still played by millions of people and Microsoft is doing well.

Note: I didn't just buy MSFT because my kid was playing Minecraft, I really like what their cloud strategy is for Machine Learning and Data Science. I think they're going to hurt Amazon and beat Google quite handily, but that's a topic for another post completely.

MSFT, 11/25/2019

But that's technology. What about retail, fashion, and other consumer type goods? For that you have to "go shopping" or at least visit the mall. I rely on my wife for a lot of retail and fashion stuff. For consumer goods or building related things I usually visit a Lowes or Home Depot.

TGT, 11/25/2019

I also talk to my Engineering friends, now that I'm out of that field. If they tell me they're busy right now then I can expect a 6 to 9 month follow through in the economy. Right now, they're not so busy because the holidays are coming. What happens in January will really sets the tone for 2020.

End Notes

While I like looking at stock charts, I really feel that the smart money is made when you buy and buy-in low. Of course you can get a clunker like TRTC (that's my loser from years ago), but with good risk management and a smart entry, you can really ride things up. Of course, you don't make any money until sell, and finding price point can be very hard. What are some good spots to sell? I'll share that in another post.

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The Nikkei

Looks like the Nikkei ($NKY) is plunging overseas. The plunge will probably show up later today in the data download, but let's take a look at her current chart and her relative performance to the S&P500.

Thumbnail image for N225.png
The smart money has been exiting since the end of may. That's one ugly black candle* here. Price action is below the 50DMA.  Due to the window of the chart, the 200DMA is not shown.
SP500vsN225.pngThat's one ugly change in relative performance too. If you were long the $NKY, you should consider your strategy and positions.

*For reference: The Quantmod R package colors a gap higher open but lower daily price as a black filled candle.

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Chinese Inspired Global Investment Rally

If the world follows the typical supply and demand economic theory, we are about to witness the beginning of a major global rally. The Chinese government recently loosened laws allowing its banks to invest indirectly in foreign equities and derivative products. China currently sits on $4.8 trillion dollars worth of reserve assets, of which it wants to slowly inject a percentage into the global markets over the next several years.

The end result will be more money chasing fewer assets and prices going through the roof! I'm glad I'm long all the way in our 401K's. The trick will be to get out right before the party ends.

Related: China grants Blackstone $3B to invest abroad (via CNN)

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