Ignoring the Noise, Acting on Signals

There are a lot of “things” happening in the world and for each thing there are many expert opinions and viewpoints out there. This is, of course, nothing new. This is always the case. So, the question I had for myself was, how am I to summarize all these things and opinions and viewpoints and then decide what the stock markets are going to do. Which of these should I use to predict the markets? If you have been reading my notes, then you already know where I am going with this.

All of the things happening in the world are noise. All of the expert opinions and viewpoints can be used for some learning and understanding, I am sure. But, in the end, they are also noise. This is not to be disrespectful to anyone. This is merely a process by which I distill signals from everything. The only thing I use as signal for my actions is “price”. I look at price telling me the distilled summary of all the things that are happening and the interpretation of all these things by the markets as a whole. It is beautiful actually.

Here is a simple table I use to identify the signals the price is giving on the state of the stock markets:

It is a simple exercise to compare price against some benchmark indicators to assess the trend of the price. The way I read the above table is that the markets are still overall trending bearish. However, they are trying to make a reversal and have made some short-term successful attempts at it. This success could eventually end up reversing the markets to trend bullish or it may fail, and we go back into a deeper bearish trend.

The above table also tells me that the US markets are trending bullish in the short-term. However, the emerging markets are not. So, my activities should be focused on the US markets for now.

Here is a table with price ROI over multiple periods:

We can see that the markets have trended nicely over the last 2 weeks and eked out gains in the short-term. This price movement has generated the indicators that we see in the prior table.

This is all I do. I check market trends every day and take actions according to that. Check this note from July 7.

Disclosure

I am currently long TQQQ, FNGU, CURE, YINN.

I am also long call options in SPY, QQQ and XBI.

In total, I am invested 25% of my capital outlay for now. I will increase or decrease based on the next price moves I see in the markets.