The Advantage of a 30,000-Foot View of the Stock Market

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View of the Stock Market
The Advantage of a 30,000-Foot View of the Stock Market

The 30,000-foot view.

It’s like looking at the markets while standing atop Mount Everest.

Well, kind of. Mount Everest stands at 29,030 feet. But I’m sure you get the point.

The concept is simple. Stand back and take a wide view of the stock market.

Too many people spend too much of their time soaking in the daily action.

Do you do this too?

It’s fine if you do. Sometimes the daily price action can be a bit misleading, that’s all.

And by taking a 30,000-foot view…your whole perception of what’s going on changes.

I’ve written to you about this a few times. But just in case you’re new to this concept, let me break it down.

Then I’ll answer a reader’s question. It may also help you…

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The 30,000-foot view of the stock market

So how do you take a 30,000-foot view?

It’s simpler than you may think.

All you do is zoom out and switch the chart from a daily to either weekly or monthly.

Here, I’ll show you a chart. Look below.

All Ords Stock Chart - View of the Stock Market

Source: Trading View

[Click to open in a new window]

What you’re looking at above is the monthly chart of the Aussie All Ords, or the XAO.

What we’ve done is stepped back and taken a wider look into the market price action.

The long-term trend is up. For now anyway.

To the right side of the chart, we still have green bars. This means price action is still higher than the month before.

That’s even though we’ve recently been through the coronavirus scare.

Using this form of analysis is not meant to give you signals of when you should buy and sell.

It’s meant to show you the bigger picture. Which way is the price going right now? Is it up or down?

If you’re looking for entry and exit signals, then sure, scale down to the weekly and daily time frame.

The reason you may want to do this is simple, the market tends to climb a wall of worry.

That’s a Wall Street saying. It means that the market will generally get over negative news and look to the future. Meaning the old long-term trend will generally continue…

Until it doesn’t…

The long-term trend is important

Anyway, about that question I wanted to answer. A subscriber wrote in asking:

How do you take a ’12-month view of all the Sectors’. Where would you go to get that data?

First, thanks for writing in. I always enjoy it when you do.

And now to answer your question.

I use Optuma and Trading View as my technical analysis programs.

You may have seen me post stock charts from those programs before.

Anyway…I’m going to answer your question using Optuma. It’s the easiest for this process.

Optuma has a built-in ‘Relative Comparison’ function. It measures the difference in gain or loss over a period.

Then all you do is enter in all the sectors or markets you’re trying to compare.

I’ll show you an example of this as a chart below.

Here’s how you do it

ASX Long Term Trend Stock Market

Source: Optuma

[Click to open in a new window]

What you’re looking at above is a ‘relative comparison’ chart.

Here are the sectors in the chart above.

  • Health Care [XJH]
  • Information Technology [XIJ]
  • Consumer Discretionary [XDJ]
  • Real Estate [XRE]
  • Financial [XFJ]

The relative comparison chart shows the daily price action of these markets. I’ve set it to a one-year period.

What to take away from this…

When performing top-down analysis, you want to find the top-performing sectors.

Once you’ve done that you want to find the top-performing shares in those sectors.

Then you begin to apply your fundamental and technical analysis. If the shares suit your rules, you can then begin to buy and sell them.

In this instance, the standout performer is Health Care. If you were to invest this way, you’d now be looking for top-performing shares in the Health Care sector.

Of course, this is a hypothetical example. By the time you read this, the data may be different.

I hope this answers your question.

Until next time,

Jonathan Evans Signature

Jonathan Evans,
Analyst, Profit Watch

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