Market Trendiness: Why It's Important

Good Morning Steemiters!

One of the most exciting elements of market research, in my opinion, is generating new lead-indicators. Lead indicators are essentially signals that can help indicate what may happen to the financial markets in the future. In one of my previous posts (The Perfect Storm: Why I Think It's Time to Get Out of Stocks) I provided a quick analysis of one of my most cherished lead indicators, margin credit. The other day I was reading the Wall Street Journal when I stumbled upon an extremely interesting lead indicator...market trendiness.

What It Is

Studying investor trends is something that I, and the larger financial community, have always held in high regard; What I failed to realize, is that the level of trendiness in the market could actually be quantified in a way that generates useful and actionable information. To put it simply, this measurement tells us how long a particular segment of the market outperforms the overall market (and subsequently how long before this market segment drops back below the overall market, i.e. how long the trend lasted).

Why It's Exciting

As with margin account credit balances, the level of market trendiness peaked  just before the 2000 (.com bubble) and 2008 (housing bubble) crashes. We are all aware that bull markets historically only last 10-12 years max. but this only gives us a rough idea of when the market may turn south. What is so cool about measuring trends in the market is that without a high level of trendiness, the bull market does not always see a correction. In other words, the bulls doesn't flip until a large umber of investors flock to one particular market segment (according to the last 20 years of studying trendiness). Our current bull, as old as it is, still lacks a trendy disposition...it is actually in the bottom 25% of historical readings. We all know this run is going to come to an end sooner rather than later; if you are trying to stay ahead of the curve, definitely keep an eye on where the trendiness level goes from here. It could warn of us of an impending market correction.

To Conclude 

Always keep an eye out for new metrics such as these. The more indicators and tools that you have in your arsenal, the bigger the edge you will have over the average retail investor. These instruments will allow you too seek out opportunity where others are not looking...which is the key to playing the market. I hope that this read has been helpful, I will continue to keep an eye out for interesting indicators that I can share with all of my fellow Steemit peeps! Have a great day everyone.Here is a link for the index that most closely quantifies what I discussed in this post (the index mentioned in the article I read in the WSJ is not public).   https://www.tradingview.com/wiki/Choppiness_Index_(CHOP)