Analytics: The logic of market movements

The best way to look at the market is to think about the underlying behavior that is moving it.  When a stock goes down in price, it’s because people are looking to move out of it and into some other position.  If all stocks are going down, it’s because people are moving out of stocks entirely and into something else, like bonds.

Typically, when there is fear of a market correction, the market will see consumer industries lose value along with heavy industry. “Safety stocks” like food and defense (that prosper no matter what the conditions since we always seem to need food and military) typically gain as institutions shift to their safety positions.

Usually, when oil stocks go up its tied to the increase in oil prices and consumer stocks suffer.  When most stocks suffer gold (and gold stocks with large gold inventories) typically go up.  Strangely enough, the last couple of days have seen a drop in every type of stock, even if they are traditional hedge.  We are talking food, gold, and even oil; everything that should be gaining has hit a wall.

Why?

It could just be the market taking a breather, but if it continues, the most logical explanation is money is moving out of the stock market straight across the board and jumping into other vehicles, like the bond market.  Since interest rates have increased, it’s really not that odd.  

Given the strange feel of the market, I would suggest using this time as a learning opportunity to monitor the movements of previous leaders like Google.  See what the reactions are in oil stocks and gold stocks. Maybe over the next couple of weeks we see a divergence between the safety stocks and their traditional inverses.  If not, the markets behavior could indicate a broad correction. Just a thought.