Dear traders,

This morning I asked a question to you guys. I said “the market likes ____?”

Since Brandon couldn’t hold up his end of the deal, I wanted to let everybody know who hit the nail on the head almost instantly!

MeastroCam must be paying close attention to what I’m talking about because he was both quick to answer and 100% accurate.

Yesterday’s activity was less than certain (the understatement of the week).

Sure we will take a few sectors that are bouncing off of something to get an occasional profit. But when I see banks not knowing where to go, financials going another direction, the home builders heading off in right field I think ‘this is exactly what the market hates.’

Don’t get me wrong I’m not entirely with the markets with this one. I love to see a bit of confusion in the markets. Confusion brings volatility, and volatility as we know is a trader’s best friend. It’s one of my ten commandments of trading!

With all of the confusion in this market we need to pin-point exactly what sectors and stock are doing in order to move on it. Gone are the days of the blind trade.

Knowing the ETFs and stocks intimately is the key right now. Knowing the top 5 companies in each sector turns Brandon’s Skittles chart into a valuable tool.

The top 5 companies compile 1/3 of the weight of any ETF. Those 5 are the tail that wags the dog. If you are able to understand the seasonality of a sector and look at the data you will be able to find your move.

We are always trying to use the data to quantify our positions in the market. You can see the top three where outperformers thanks to the bounce we are seeing. But as you make your way down the list you start to see the skittles get mixed up quickly.

Don’t worry about the .5% you can grab by being quick on your feet. We should be going for the 15-20% that is hanging out there telling you it’s going to happen.

Watch these sectors as they start to bounce around a bit. It will bring along with it, volatility.

By doing your homework on the top stocks in each sector and having an understanding, even at a basic level, of technical analysis, trades will to present themselves.

The thing to remember here is that you will be right more often right now in the down markets, that you would be if youre just trying to hop in on the 8 or so days we are seeing to the upside. Just as the market likes, consistency in your trading will always outwork luck.

Pick your spots, camp them out, slow this market down while the trend comes to you.

This is something holds true even when we take into account market sentiment. I know it seems a bit odd but a lot of people were surprised to see the consumer confidence numbers today. They were also surprised on the demographics that still have confidence in the economy.

Lower income households actually tend to have a higher level of confidence than those in higher tax brackets.

I’m not sure if this says something about me or not but that makes a little bit of sense. We tend to see people who are a bit more in tune with the markets react this way.

Thanks to the tools I have given you, we don’t need confidence in the economy we just need to have confidence in the data. It is the gold standard of trading uncertain times. We need to be able to look at the information we can pull from the markets, find our time and space to trade in and make our move.

Talk soon,

Chris Johnson
Quantitative Specialist, Penny Hawk


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