How to identify the market’s next big move

Good morning! 👋

Every Friday, I write something we call the AMAs—”Ask Me Anything”—exclusively for members of the One Bar Ahead® Family.

Everything is fair game.

As you can imagine, the AMAs are super popular because we have real conversations about stuff that matters... making money, stocks we own (or want to), the best investing strategies, tactics, and more.

One of last week’s questions caused such a stir that I decided to post an edited version here as a special Friday 5 with Fitz.

Here it is...

Q – Keith, it’s amazing, every time there’s a real bad day, it wipes out everything that you’ve built up during the week. That’s another reason you have to stay in it, to win it. Also, each time we have a day like this, I look at _____, or healthcare, and it skyrockets. Wish I knew how to time this better or predict it better. —Mike S.

Howdy Mike!

You are not alone by any stretch of the imagination!

The constant balance between “risk on” and “risk off” is a ballet as big money cycles between growth and value. It feels like gains are being “wiped out,” but what’s really happening is that the money is shifting from one side of the boat to the other.

The key to maintaining the long-term perspective needed to get through shorter-term chaos that trips up most investors is something you hear me say a lot: “When in doubt, zoom out.”

As for predicting what the markets may do next, that’s often a function of two things most investors never connect: the US 10-year Treasury and something called compression.

Let me explain.

Remember what the 10-year treasury represents.

It’s a statement not of yield like most folks think but of risk, and specifically the relative cost of carrying all that leverage that the really big traders use every day.

If rates are rising, it’s a good bet that stocks will be selling, particularly when it comes to Big Tech. Conversely, if rates are falling, it’s typically a good bet that the big boys will be buying. Not always, but enough that it’s a rock-solid rule of thumb.

Which brings me to compression.

I suggest looking at one of my favourite technical indicators, the Keltner Bands. You can apply it to any stock, but the indicator really comes into its own when you put it on the S&P 500 index.

In contrast to the more widely known Bollinger Bands, which represent volatility around price, the Keltner Bands represent volatility around trend, which is why I think they’re a fabulous tool for serious investors in search of an edge... and calm.

When you see the distance between the upper and lower boundaries begin to converge—meaning they’re getting closer together—that’s typically a sign that there’s compression, meaning that the markets are storing up energy for a big move as volatility decreases.

It’s kinda like a slinky in that sense.

You can often find “confirmation” in the VIX, which will show a similar decline as the “energy” builds. That’s because the VIX reflects the constantly expanding and contracting volatility represented by a calculation based on a basket of short-term SPX options weighted to maintain an average maturity of 30 days.

My experience has been that learning to read the two together—the Keltner Bands and compression—can be a great foundation for making active investment decisions, especially at or near key market turning points.

So, if you think back to what’s just happened this week, I think you’ll be very pleasantly surprised by what you see with many of the stocks we talk about frequently.

In closing, if you’ve enjoyed today’s 5 with Fitz and you’d like to learn more about how to become a more knowledgeable, effective, and consistent investor, you may enjoy a subscription to One Bar Ahead®.

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As always, let’s finish the week strong and, of course, MAKE it a great day.

You got this!

Keith 😊