What is the BIG Difference Between Professional Traders, Institutional Investors, and the Average Investor?
The answer is ... professional traders and Institutional Investors have MORE information about the market, a LOT more.
Information that tells them what is happening beneath the car's hood. They see things going on that no-one else sees, and they see a broad enough spectrum of data which allows them to "understand" what is going on, and why the market is moving like it is.
Take today's chart for instance. It is only one of dozens of charts that we post every day, but still ... by itself, it tells an important story.
Chart and data explanation:
There are 3 lines on this chart ... one blue with arrows, and 2 green lines.
The blue line represents the daily count from one of our nightly computer runs ... where we actually count the number of unweighted S&P 500 stocks that have Positive Strength versus those that have Negative Strength. We then report the actual numbers on the blue line in the chart. That tells you how many of the S&P 500 stocks have positive strength, and how that phenomena is trending. 250 is the halfway point on the S&P's 500 stocks, so if the blue line is ABOVE the blue horizontal line, then there are more positive stocks than negative stocks and that means that the Bulls have control.
Now, look at the same blue line and notice what happened to the trend after the vertical red line. Although still positive, with the Bulls in control, the trend has been going down. It is a down trend because it made a lower top, and a lower bottom.
Since professional traders are supposed to have more information than the public, was there market information that told them that they should expect the number of positive stocks to start decreasing?
The answer is yes ... and that brings us to the 2 green lines. These lines don't tell you how many Very Strong or Strong stocks we have counted each day; instead, it tells you what the Growth Rate was for each of them.
Reading it is pretty simple ... above the horizontal green line indicates that the Growth Rate is positive which would mean that the average number of stocks in the S&P 500 would be pulled up higher due to the increasing Rate of Growth of the Very Strong and Strong stocks (see the blue line).
Below the horizontal line would indicate that the Growth Rate was negative which would mean that the average number of stocks in the S&P 500 would be pulled down lower (see the blue line again).
So, the Growth Rate of the Very Strong and Strong stocks went negative at the end of October and have remained negative. Since a negative growth rate means that the number of Very Strong and Strong stocks are in a state of deceleration, then the total number of S&P 500 stocks with a positive strength had to drop.
The Millions Dollar question ... Will the S&P start trending up again ... or not?
The answer will come from what happens to the Growth Rate of Very Strong and Strong stocks. Currently, they are moving up and approaching the green zero line. If they move above that line within the next few days, then the total number of S&P stocks gaining positive strength will increase and result in the market moving higher. But, if the Very Strong and Strong stocks stay with a negative rate of Growth, then the market will continue it's down trend.
Since the Growth Rates are now testing the zero line, the answer will come very soon.
P.S. The media will soon be wondering if we will get a Santa Claus rally or not. It the green lines move above the horizontal line, the answer will be yes. If the Rate of Growth stays below it and remains negative, the answer will be no.