For every hill, a valley; for every valley, a hill
Investment opportunities abound, now more than ever. And yet it would qualify as folly, if I were to fail to consider general market dynamics. So I do. I check my specific investment opportunities vs its group and sector strength or weakness: Does the group and sector strength or weakness ratify my perception of potential reward in this or that opportunity? If not, and even if it is, does my favored investment opportunity manifest as a leader or laggard within its group and sector?
Could the weakness in the financial sector overstate the weakness of the general markets? Probably, as that sector had a predominant position in the market averages and indices (not indexes!); at least until recently. So I also compare and contrast stock vs group and sector, group vs group, sector vs sector, and all vs the general market averages and indices. This affords me the opportunity to find stocks that diverge positively vs general market weakness. (And vice-versa.) These positive divergences form the first rays of light in the otherwise pitch-black night of the markets' ferocious decline. Area patterns reveal whether accumulation or distribution occurs, and the likely direction of the next major move. Chart patterns cluster, sometimes unbelievably so.
But area patterns help in another way as well; if you know area patterns, you have an inkling of the directional trend and thus no fear of market dynamics. And a set of expectations as to how the pattern could develop next. You see breakdowns from big tops in the daily charts? Open your perspective to the weekly or monthly chart basis, and see if the ugliness remains. Did a stock run to new all time highs, but it has since been cut in half in a beeline move lower? With area patterns, you can look forward to the bounce towards a possible and potential double top, as the stock builds a larger top. Or base. Again, your perspective and perception are paramount.
This all is confusing, I am sure. But the attempt to learn rewards itself. You few readers who congregate here should each pat your own back for making the attempt; you might lose portfolio value today, but the lessons you learn will enable you to side-step them in the future. The markets, like the mountain, might be uneven, with tricky footing and frightening drops here and there, but the topology of each generally is uphill.
-- David M Gordon / The Deipnosophist