From the desk of Thomas Bruni @BruniCharting
I look at a few hundred charts per day across multiple timeframes, and thousands each weekend, but I very rarely find an idea that’s actionable at that particular moment. This begs the question of why I look at so many charts if they rarely lead to actually putting on a trade, to which the answer brings us to the title of this post.
When utilizing a top-down approach to technical analysis, every liquid global asset class provides some type of information that’s useful, even if you don’t trade that asset class directly. Instead, each new piece of data adds to the pool of information that we as market participants use to make decisions. When the weight of evidence suggests a more probable outcome, that is when it’s appropriate to put on a trade that expresses that theme or thesis in the most capital-efficient way possible.
Some people choose to utilize scans to find only actionable setups that fit their process, and that’s fine if it works for them, but I find that looking at all of the information available to me will provide the greatest opportunity for success as a market participant.
A great example of this concept is the quick study I did over the weekend during my ratio analysis of international equity ETFs relative to the S&P 500. Looking at the weekly and daily timeframes, I noted whether or not the ratio was breaking out and whether there was a bullish divergence present. I also noted the slope of the 200 period moving averages to identify the long-term trend.
The eighteen markets highlighted in yellow are those of the forty-three on the list that are showing significant relative strength (based on breakouts and bullish divergences across timeframes and changes in slope of the daily smoothing mechanism). This evidence suggests that those equity markets (and currencies) with significant commodity exposure are showing relative strength versus the US in the short-term, whereas many developed markets like those in Europe are lagging. It also tells us that the structural trend is still lower in most of these countries, but that it’s worth watching to see if these tactical breakouts can continue and develop into longer-term structural trends.
With this baseline of a thesis, we can add to it using information from other markets to see if the weight of the evidence supports our initial thoughts from the study.
Although these charts provided us valuable information, very few of these ratios are actionable on their own in the sense that they’re tradable right now. With that being said, I can guarantee the insight they’ve given us today will contribute to a future trade in some capacity.
The Bottom Line: Next time you see a chart that’s a hot mess or not actionable and are tempted to skip over it, I ‘d encourage you not to. Whether you realize it or not, every liquid global asset class and chart can provide valuable information to us as market participants. Regardless of your approach to markets, it’s important to use a weight of the evidence approach in developing and executing a thesis so that you can give yourself the highest probability of succeeding.
The only way to weigh the evidence is to put in the work and gather / interpret it yourself, which very few people are willing to do. If you choose to put in the time and effort, I guarantee it will add to your process in some capacity and help you succeed long-term.
As always, if you have any questions feel free to reach out and I’ll get back to you as soon as I can. @BruniCharting
JC here – I couldn’t agree more with him, obviously. This is exactly the mindset that I take when ripping through our extensive chartbook. Not every chart is actionable. In fact, most aren’t. But that’s not the point. Every chart is just one piece of a giant, always evolving puzzle. To simply purchase or build a scan that spits out a list of stocks and assume it will work in every market environment is not only irresponsible, it’s actually an insult to the market itself. That’s not how this works folks. You have to put in the work if you think you have any chance to make money in the market consistently. With that said, most people don’t have the time to analyze hundreds/thousands of charts per week. Since we do this for a living, we put in the time, and then some.
Members of Allstarcharts.com have full access to, not only hundreds of annotated charts with commentary, but also the conclusions based on the weight of the evidence. We offer a 30-Day Risk-Free Trial, so my suggestion is to give it a shot, and see if it’s for you. Click Here to start your 30-Day Risk-Free Trial Today!
The author does not have a position in the mentioned securities at the time of publication.
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