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I've been a little quiet lately. It's not that I don't have a lot to say, it's just that I've spent most of my time staring at the screen each trading day asking, "How?" and "Why?"
You see, that's what happens when markets get irrational. Traders like myself – and I mean those that have been around for more than a few market cycles – look at a market like this and ask questions because there's something to be learned… and of course, money to be made.
As much as most people want to think that markets don't change, they do. Like anything else, they evolve. More data, more coverage, more participation, more politics, etc. – all of these things force the market and its participants to evolve.
That said, there are a few rules that remain constant.
Value is desirable… Take a risk to be rewarded… The economy leads the market (not the other way around)…
Keep that last one in mind, and you have to fall back on the "Dow Theory." Here is how Investopedia defines this old chestnut…
So, the Dow hit a new high last week – that's one part of this age-old theory. The Dow Jones Transportation Index hit a new high… in April… and it's heading into a bearish trend.
That is a signal telling you and me to stay away from – or even short – this sector aggressively.
There are a couple of other "problems" pointing us to profits…
About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader, Strikepoint Trader and Straight-Up Profits. He also contributes to Money Morning as the Quant Analysis Specialist.