The following is why I watch the markets all day. By paying attention to the market internals I am able to assess whatever situations arise and act accordingly for our clients. Look at the attached chart. This is why this market is so hard. As regular readers of my newsletter know bonds and Yen are correlated assets. This means that when Yen and bonds go higher equity markets like the S&P go lower – except for Thursday.
Bonds, Yen the S&P 500 and the Nasdaq all moved higher Thursday morning after a brief equity sell off. Divergences are bad for the markets…if all of the correlated assets are moving higher typically equities will be the first to break lower. That didn’t happen around noon on Thursday. Right around noon central bonds broke lower to the downside unexpectedly. This shook the bond ETF TLT. What didn’t happen is what is the most interesting.
Equities didn’t rally on the break lower in bonds. This is crucial. If this were a true rally in stocks, equities would have rallied higher right away on higher volume. Volume was bone dry. If equities rallied and bonds continued their plunge I would have wanted to sell our bond position.
Realizing that volume was low and equities were not moving higher in the shop we decided to hold onto our TLT position. For the day this was the proper decision. Bonds climbed higher into the close and stocks capitulated lower after being up nicely for most of the day.
What’s the point?
You have to take in all of the gauges of the market. You can’t act on one piece of information alone. Having situational awareness to all facets of the market is crucial in this environment. This is not a trending market – which means that this market doesn’t forgive mistakes. Rooting decisions in fact and not emotion leads to actions that are informed, not panicked which leads to less mistakes.
I hope this anecdote helps you in your own trading and investing. If you’d like to talk stocks and markets please shoot me an email or give me a call – Tim.Reazor@NorAmAsseet.com or 855-Real-Wealth
Best Regards,
Tim
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