It's all doom and gloom.
1% email received for the last week, woohoo. (Monetary figures edited out.)
It's just a percentages & numbers game, is the way i look at it. I find its easier to accept losses in your stride this way.
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I had a little think about this, so out loud...
So, what entails a sideways or crabby market?
Lets use the example of;
say 50% of stocks are going up, and 50% of stocks are going down, thus balancing out to a flatline.
(For this example let's ignore market capitalisation or MC.)
In reality, it may be very different when taking into account MC, but I would hazard a guess statistically, (law of averages/ big numbers), that the 50:50 scenario could be close to reality.
Not necessarily so and in any case, shouldn't be assumed so, however without data to prove it either way, lets go with 50:50.
This means in a sideways market, in theory, out of a random selection of 10 stocks, 5 may go up, 5 may go down.
So, what entails a uptrend or bull market?
Same as above except the ratio will be higher as the trend is up.
Example; 70% of stocks are going up, 30% are going down.
(For this example, again let's ignore market capitalisation or MC.)
This means in a uptrend market, in theory, out of a random selection of 10 stocks, 7 may go up, 3 may go down.
A bear trend?
Lets just reverse above;
Example; 30% of stocks are going up, 70% are going down.
This means in a downtrend market, in theory, out of a random selection of 10 stocks, 3 may go up, 7 may go down.
What is this; Amateur Hour?
Yep it is... the thread is in the beginners area after all, and I ain't an expert (a drip under low pressure..)
Back to Market Capitalisation
Lets bring market capitalisation into the mix, just in theory only, and apply it to the above examples.
In thinking about the value of any one particular company in comparison to another particular company, it has the potential to sway these basic statistics dramatically.
Example;
MQG with a MC of $ 52,175,000,000 (lets call it $50 billion) and
BOQ with a MC of $ 4,954,000,000 ($5 billion rounded up ?)
So using these two companies as example,
whatever effect
BOQ has on moving the indicie or sector index it comes under, (being the XFJ or S&P/ASX 200 Financials),
the effect that MQG will have will be 10 x greater than that of BOQ.
So we see, apples aren't apples.
To say the market is going sideways, doesn't actually mean that out of a random selection of 10 stocks, 5 may go up, 5 may go down.
In reality, it may be closer to either of the bull or bear trends figures in relation to actual
STOCK figures going up or down.
Without hard data analysis to prove actual numbers, its just guesswork.
That leads me to thinking of individual indicies, which could be thought of "one bigarse stock" in comparison to the All Ordinaries, being the final indicie or aggregrate of the whole market.
So again, if a few of these "bigarse stocks" (ie; individual sectors) have a bigger overall MC (or weight), they have the power to sway the All Ordinaries (the market aggregate) potentially in a different direction to the theoretical majority of stock directions.
So the question I pose, is a bull trend really a bull trend, is sideways really sideways, is a down trend really a down trend when the above is taken into consideration?
By monetary valuations or MC they are, no doubts about it. (I guess "follow the money" can be taken at either macro or micro levels.)
By grass roots individual stocks movements, without statistical data to prove it, the trends are hidden by the noise of the bigger end of town.
I believe this may provide quite a few niche trade areas in a few sectors at any one particular time, regardless of the overlying and in your face market trends and sentiment.
Further, I believe in these niche areas/ sectors, rotation is rife.
I should stop thinking out loud now, apart from thinking;
does anyone know if (or how) Amibroker can extract statistics such as mentioned above to determine what exactly is going on with overall individual sector constituents (stocks) directions?
Cheers. ?