Author Topic: Market Risk Sentiment  (Read 4695 times)

Peterma

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Market Risk Sentiment
« on: December 28, 2021, 07:10:31 PM »
Just thought I'd start a wee thread on market sentiment - I figured best place was here although risk sentiment is of course market wide.

Quick background on me - been in business under my own steam since 1980 and previous to that 7 years learning from an entrepreneur.

The one thing I noticed in my early days with that guy was that every time he met another business person his first question was invariably "how's business?" I realized over time that he was seeking sentiment - getting a feel for what is now PMI

Nowadays we can have that question answered via the internet and because of information flow that sentiment can quickly change in either direction.

Perhaps these changes of risk sentiment can be signalled and just maybe it's possible to enter Douglas's so called zone where we can find ourselves reacting to risk sentiment change.

A live example this evening:

Btc/Usd dropped heavily this past 3 hours - since Nov Btc has been risk correlated. So this evening an against the trend trade on US stocks was reasonable - because against the trend then an exit on US30 with a 1% gain was possible.

A new sell entry now also possible because Btc continuing to fall with the US2000 also looking to follow suit and Nsq likewise.


Peterma

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Re: Market Risk Sentiment
« Reply #1 on: December 28, 2021, 08:57:26 PM »
Ok - time to catch up - Btc has tailed off with a hammer last hr1 - likewise US30 has stopped falling.



Peterma

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Re: Market Risk Sentiment
« Reply #2 on: December 28, 2021, 09:16:40 PM »
This thread is aimed at younger guys learning so you oldies will likely get bored but no worries.

VIX is oft times advised as the index to gauge market 'fear' (sometimes known as the fear index) but this thread will seldom mention the vix, instead I will look to market price and behaviour itself.

Info on VIX is widely available.

My first go to index is the Russell 2000 or small caps.

The market is a money market, i.e. is made up of money that already exists. Money, or perhaps better described people (investors, banks, insurance co.s, pension funds etc) who already have money are in a continual quest to add more money.

There is zero judgement in the market, just a focus on profit - therefore we must equally act - just as a market bot does.

Small caps are a risk pit by design - huge potential return, many large companies started off life as a small cap.

Peterma

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Re: Market Risk Sentiment
« Reply #3 on: December 28, 2021, 09:25:42 PM »
Finally, how would I judge things tomorrow - what frame of mind?

The 2000 is looking downward and so is Btc - Uk mostly on holiday so market thinner.

Nasdaq also looking down

S&P - ETF's - XLU (Utilities) and XLP(Consumer Staples) biggest winners - will talk about these later.

So hesitant about buying risk first thing.

Peterma

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Re: Market Risk Sentiment
« Reply #4 on: December 29, 2021, 11:34:57 AM »
Remember these thoughts of mine are for learners who may read some time in the future :)

S&P sector tracking.

There is value in looking at particular sectors within the S&P to get a handle on investor sentiment. If defensive sectors are on the rise and offensive is holding back then that can be a heads up that there is at the very least some hesitancy in risk.

I remember back during the 'credit crunch' an old trader commenting 'they always need toilet roll' (consumer staples).

We can track the sectors easily via ETF's here:
 https://www.sectorspdr.com/sectorspdr/tools/sector-tracker

In addition it's possible to examine the 'breadth' of movement.

Breadth is the term given to an index move - narrow and it means that only a few stocks have performed extra well causing the move to have no follow through. John Murphy likened such a move to the generals coming out of the trench but leaving the soldiers behind and thus the attack failing.

E.g XLP rose by 0.57% - then when I click on XLP I get a list of the individual components - out of 31 only 5 are in the red thus telling me that XLP was bought reasonably wide.


Peterma

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Re: Market Risk Sentiment
« Reply #5 on: December 31, 2021, 11:22:41 AM »
Just thought I'd mention - on the BTC chart up above (3 days back) there is a yellow horiz.

Sometimes it's good to have these markers (this one since Dec 6th) to help with perspective.

Same horiz in play this morning.


PipMeHappy

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Re: Market Risk Sentiment
« Reply #6 on: January 01, 2022, 07:10:35 AM »
Thanks @Peterma

this is a really interesting thread, encompassing:

-whole market/relative  strenght analysis;
-breadth analysis;
-risk sentiment/trends.

I have been  following John Kicklighter
for years and he  does some regular thinking
on risk trends, looking at;

- junk bond etfs;
-  commodities;
- carry trade index;
- indices...

...to name a few. This puts a perspective
on, say, an advance in the S&P500 that seems
to lack conviction.

You have started a really helpful thread
and I hope others will latch on.

May I take this opportunity to wish you
a healthy and prosperous 2022!

« Last Edit: January 01, 2022, 02:32:46 PM by PipMeHappy »

Peterma

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Re: Market Risk Sentiment
« Reply #7 on: January 04, 2022, 10:05:14 PM »
Holidays over, new month and new year.

Market sentiment like all human sentiment is often fickle - for this reason it can be silly trying to figure sentiment far down the road - thus hr1 charts and short term comments mostly.

Lately a damper on risk has been the virus - but the market figures the current outbreak will have a lesser economic impact - except on China who are still following the zero tolerance policy - a certain risk to supply chain if omicron takes hold in that country - and a consequent risk to entrenched inflation in the West.

But this risk is being discounted right now.

BTC is a very recent risk indicator and perhaps one of the most fickle - on the other hand there is Yen, and USB10YR.

Then from time to time XAU/USD USDCHF and WTI are good indicators.

I will try to speak about each on their active days.

Murphy described Gold as an alternative currency to USD - yet not so today - neither was it a risk indicator for US30 - but the 10yr was a different story.

I seldom would trade an index without looking at all 4 and then the 10yr - oft times nothing much but there are times the bond market will move fast before stocks.

Right today the 10yr posted 2 candles down (price) while US30 was tipping slowly up - the 2 candles down was the confidence needed to enter a buy at market.

First the wall st chart - arrows up are when the 10yr took a shot down.


Peterma

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Re: Market Risk Sentiment
« Reply #8 on: January 04, 2022, 10:09:57 PM »
Lol - the above is Wall st this evening - below is the 10year

Long 1st day back :)

Edit: haven't yet checked the sectors but fair bet that XLK is a loser today looking at the nsq
« Last Edit: January 04, 2022, 10:11:49 PM by Peterma »

Peterma

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Re: Market Risk Sentiment
« Reply #9 on: January 05, 2022, 09:29:39 PM »
Huge move US indices in the past couple of hours - the risk harbinger was yet again the USD2000 - although XLK ad Nasdaq giving a hint last night as per the edit.

BTC played follow my leader.

Anyways the play was the UDSD30 - the rest were heading south whilst it held back - lines and arrows are of the same time - USD2000 chart first (rest much the same)

« Last Edit: January 05, 2022, 09:33:58 PM by Peterma »

Peterma

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Re: Market Risk Sentiment
« Reply #10 on: January 05, 2022, 09:32:12 PM »
However see the feet dragging by US30 - it eventually capitulated giving guys plenty of time to decide whether to enter or not (same time as the arrow):


Peterma

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Re: Market Risk Sentiment
« Reply #11 on: January 06, 2022, 02:38:54 PM »
USD2000 leading the bounce right now.

Edit: the danger is of course is it a dead cat bounce - continuing to monitor the 2000
« Last Edit: January 06, 2022, 02:50:50 PM by Peterma »

Caesar

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Re: Market Risk Sentiment
« Reply #12 on: January 07, 2022, 09:38:27 AM »
Interesting thread, @Peterma

I often wonder how much an average
person trading from home can benefit
from relative strength and breadth analysis
as an edge to make short-term decisions
that prevent some losses through looking
at  correlated instruments' price action:
it is sometimes difficult to interpret  a
change in correlation between two or more
assets with enough time left to provide
an edge that is tradable (which also
includes avoiding bad trades).

Furthermore, it is equally arduous
to interpret what is correlation or
causation, i.e. whether it is one asset's
change of behaviour to instigate a
certain move in another or whether
it is a  chance event and none
of the assets in questions leads the
other. In the case of Gold, for example,
it is tied to the Dollar, also a safe haven
of last resort, therefore in a risk-off
scenario would one interpret a USD drop
as causation of a Gold rise or the other way
round? Which one instigates and which one
follows? This is where it gets tricky.

Thoughts?
Hail Caesar.
No, just a bit of rain

Caesar

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Re: Market Risk Sentiment
« Reply #13 on: January 07, 2022, 12:19:21 PM »
I put out a tweet about the upcoming Non Farm Payrolls later today
and I got this reply...


What do you think?

(see attached image)
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Peterma

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Re: Market Risk Sentiment
« Reply #14 on: January 07, 2022, 08:05:09 PM »
Back a few years I recall a trader talk about NFP and his approach pre-release.

Was actually going to post this morning and then held back because I hate influencing in advance.

His point was to look to business confidence - think i mentioned PMI at the beginning of this thread (how's business?)

Bottom line is could I have taken a position before NFP based on this?:

https://tradingeconomics.com/united-states/business-confidence