Market review 23.05.07
Today I’ll be expanding on my trading approach before getting into the weekly market review.
Strategy – Part 2
Two weeks ago, I gave a quick overview of my approach. I briefly discussed four main types of trading strategies and mentioned that the two I use are: technical analysis (specifically trend following & momentum) and sentiment (positioning).
Let’s discuss this further.
Yin & Yang
Trend-following & positioning both follow the 'smart money' but can often conflict as the latter is a mean-reverting dataset. However, this can be a good thing as it provides us with balance.
A great example of this is during the Mar ‘20 Covid crash. The trends got bearish, but positioning data showed that hedgers were getting extremely bullish. This told us to look for major support levels where we could enter starter long positions.
Had we only relied on breakouts or moving averages to get back in, we would’ve bought at much higher prices as markets made a very sharp recovery (for example: see the performance of the ROMO ETF).
Similar logic can be applied when trends are bullish. If hedgers are getting extremely bearish, we want to look for major resistance levels where we can take partial profits.
Positioning data is imperfect, but it can sometimes help at extremes. We’ll look at examples later in this post using positioning data for gold and copper.
This week, we saw some big moves in the market:
Regional Banks (KRE) and OIL were down -7% and -10%, respectively.
Gold Miners (GDX) and Biotech (XBI) were each up over 5%.
Tech: AAPL, MSFT, and NVDA continued higher. SHOP was up 28%.
None of this comes as any surprise – trends, relative strength, and the intermarket had us positioned correctly. The leadership board only further separated the winners from losers this week:
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