Constructive week, yet...

I trade a market that is uniquely my own. Whereas the methodology I use is in keeping with the spirit of great predecessors and is in no way especially unique, the manner in which I approach and study and interpret market conditions will be greatly influenced by the nuances of my experience and belief. In addition, as my knowledge base grows and compounds with each passing day, what I thought I saw, believed or knew yesterday may be completely different from what I see, believe or know today.

Over this past year I've often envisioned myself as a tree of knowledge, and when approaching concepts that challenge my beliefs I ask myself if in this instance I should remain firm like the trunk, bow like the branches under a heavy wind, or release the idea like an Autumn leaf. Another vision I've had consistently over this year is an accordion which when expanded sucks in information to be processed and when compressed expels the concepts that aren't in keeping with my current understanding like air, while retaining just enough that on the next expansion the remaining ideas can create continuity and narrative with the newer information to process.

In keeping with this spirit, each weekend I sit down and exhale the previous weeks prognostication and approach the upcoming one in this frame of mind. What important changes in character occurred over the past week and how may they carry forth through the upcoming 5 days? One process in which I accomplish this is through a composite of the market, which much like the rudimentary stick-figure animation scribbled into the corner of a grammar school primer unfolds motion over time. In order to achieve some continuity and form from the abstract a consistent skeletal structure is helpful, and my choice of late has been using the $USHL5 and sector rotation.

Last week I held two expectations coming in:

The first was to see the higher low established on the $USHL5 hold and although this indicator fell further establishing a lower higher low pivot from last week, it still has yet to undercut -1015. 

$USHL5 09/15

The second was to see the beginning of more aggressive “riskier” asset classes rotate into the sector mix.

Morningstar Industry Groups 09/15

Both of these events have occurred, so now what? Reviewing this past week, there has been constructive action validating the long point of view with the NASDAQ and SP closing up 5 days in a row and up 6.25% and 5.35% respectively. This past Friday established 67 new highs which is another positive. However, I'm still dancing to the Waltz while the market is dancing Salsa. These moves have been swift and volatility high with index moves of 6% up followed by 8% down followed by 10% etc... and still the range continues. Regardless of how constructive the action has been, I'm still out of cadence and maintaining form and discipline during this stage is the only concern I have.

Granted, I don't trade indexes I trade the underlying stocks themselves, however they as of late having been moving lock step as well with the result of wide and loose price movement. The current underlying pattern structure I look to trade and the time frame for my holding period are not quite in sync with the current environment and I've come to accept that I am not experienced enough to trade this structure and continue to choose patience as my trading vehicle of choice.