Situational Awareness

Situational Awareness or SA is an aviation term. Pilots are trained to maintain SA all the time to ensure flight safety.

SA concept was developed in Vietnam war to overcome the problem of large number of plane crashes and incidence of own planes shooting each other or colliding.

SA involves being aware of your environment and adjusting strategies accordingly.

In the market the concept of SA can be used to adjust our trading, position size, risk exposure, profit target, and kinds of setups traded based on market conditions.

Currently the market is in multi month bull move that started in September. The few dips so far has been bought.

One distinct character of the market move has been low magnitude moves compared to past bull moves. Stocks breakout but they do not make very big moves.

Smaller stocks and technology stocks have lagged and not been major participant in move. Large cap stocks have lead the advance.

Breadth based trends have not worked as good as they work in most market circumstances. Excessively positive breadth corrects by market going sideways or having rotational pullbacks.

Every market has a dominant theme . The bull market from 1990 to 2000 was about technology stocks. The 2003 to 2007 market was about emerging markets and energy/commodities. Several hundred stocks doubled, tripled or went up 500% during that period based on their earnings/sales growth.

The predominant theme in this market for last 4 year has been Fed action. Every rally has started with aggressive Fed move and it has ended with either pause in Fed policy or on finding that in spite of Fed action the stocks earnings are not growing.

Currently we are in earnings season, that tends to lead to day to day action being dominated by earnings releases.

Overall from SA terms look for smaller magnitude moves.

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