Why is a weekly market trend analysis part of my process? Like most people, I tend to use first level thinking to make snap judgments about things, and then move on.
Second level thinking is an important concept on market expectations developed by Oaktree’s Howard Marks. Marks explained this theory in detail in his book, The Most Important Thing:
[AMAZONPRODUCTS asin=”0231162847″]
Here’s one of his examples:
- First level thinking says, “It’s a good company; let’s buy the stock.”
- Second level thinking says, “It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.”
I run the numbers on Markets and Sectors each week, to force myself to use Second level thinking.
So, how have the Markets done over the last week? Let’s take a look:
The following table is based on the Z Option Market Analysis Tool – which determines if a market is trending by assigning a trending score from -3 to +3. This helps us keep our trading with the trend.
| Symbol | Description | Short Term Trend | Medium Term Trend |
| $DJI | Dow Jones Industrial Average | 3 | 3 |
| SPX | S&P 500 INDEX | 3 | 3 |
| RUT | RUSSELL 2000 INDEX | 3 | 3 |
| NDX | NASDAQ-100 INDEX INDEX | 3 | 3 |
| VIX | CBOE MARKET VOLATILITY INDEX | -3 | -3 |
| /ZB[U6] | 30-Year U.S. Treasury Bond Futures,ETH | 3 | 3 |
| /ZN[U6] | 10-Year U.S. Treasury Note Futures,ETH | -2 | 1 |
| /GC[Z6] | Gold Futures, ETH | 3 | 3 |
| /CL[U6] | Light Sweet Crude Oil Futures,ETH | -3 | -3 |
| /DX[U6] | US Dollar Index Futures | -3 | -2 |
| $DJT | Dow Jones Transportation Average | -2 | 1 |
| XLK | SELECT SECTOR SPDR TRUST TECHNOLOGY SELECT INDEX | 3 | 3 |
| XLI | SELECT SECTOR SPDR TRUST INDUSTRIAL SELECT INDEX | 3 | 3 |
| XLY | SELECT SECTOR SPDR TRUST CONSUMER DIS SELECT INDEX | 3 | 3 |
| XLB | SELECT SECTOR SPDR TRUST MATERIALS SELECT SEC INDEX | 3 | 3 |
| XLE | SELECT SECTOR SPDR TRUST ENERGY SELECT INDEX | -3 | 1 |
| XLP | SELECT SECTOR SPDR TRUST CONSUMER STAPLES INDEX | 2 | 3 |
| XLV | SELECT SECTOR SPDR TRUST HEALTH CARE SELECT INDEX | 1 | 3 |
| XLU | SELECT SECTOR SPDR TRUST UTILITIES SELECT INDEX | -3 | -2 |
| XLF | SELECT SECTOR SPDR TRUST FINANCIAL SELECT SECTOR FUND | 3 | 3 |
Any market showing a 3 or a -3 is trending strongly – and should be factored into any options strategy you are contemplating.
Stocks, 30 Year Bonds, and Gold are all at highs for the year? That is not supposed to happen, but we are in a very strange market. With negative rates around the world – folks are looking for safely in the USA. The Energy Sector, and Oil specifically – are still in a bear market.
Leave a Reply