One Of These Doesn’t Look Like The Others

As I have written a time or two over the last few years, I’m of the opinion that the much of near-term machinations in the stock market are now mostly noise. Humans making judgement calls about what they see in a company or the economy are no longer the driving factor of intraday activity. No, nowadays it’s the machines that execute the vast majority of transactions at the Mahwah, NJ data center, not traders at the corner of Broad and Wall.

Yes, I still do have 1-minute charts up on my screen. But these charts are not there to identify key levels in indices but instead to help me identify (a) when news hits and (b) how important the news item appears to be.

I bring this up not as a critique or a judgement, rather as a preface to the point that I now prefer to look at the short-term action in the market from a bigger-picture perspective. There was a time that when Line A crossed Line B on a chart, I would proceed to automatically, and without a hint of emotion, make a move in a portfolio strategy (anybody remember when a 30-day moving average with 3% bands on either side was considered a sophisticated trading scheme?). However, with short-term trends now driven by algorithms executing instructions on a millisecond basis, I choose to hunt for a “message” when looking at charts – not exact trigger points.

Sure, there are still key lines in the sand that, when broken, will undoubtedly trigger the algos to react. Therefore, it can certainly be beneficial to know where the key levels are on the charts. I.E. The levels that “everyone” is watching.

But today, I think the key to the game is to ignore as much of the short-term action as humanly possible and to focus on the important market trends and cycles. And in effort to try and ascertain when an important move is about to begin or end, I look at (a) a myriad of market indicators and models (a great many of which I share each Monday morning) and (b) what the market is “actually doing” at any given time.