Does Your Stock Swim Against the Tide? Market Defiance
We covered Market State. Now, let's talk about a crucial piece of context my system layers on top: Market Defiance.
Looking at a stock in isolation is amateur hour. You have to understand how it's behaving relative to the broader market. Is it leading the charge, getting dragged down with the rest, or stubbornly doing its own thing? That's Market Defiance.
My program calculates this automatically. Frankly, ignoring this context is like trying to navigate a minefield by just looking at your own feet. You need situational awareness.
Simple concept: It measures how much a stock's performance deviates from the overall market's performance, specifically the S&P 500 (using SPY as the proxy). We don't just look at raw percentage points, though. That would be too simple, and often misleading.
The Stock Archeologist calculates two key versions:
Short-Term Defiance: Compares performance over roughly the last quarter (think ~50 trading days).
Long-Term Defiance: Compares performance over roughly the last year (think ~200 trading days).
Because relative strength (or weakness) is a powerful indicator.
Finding Leaders: A stock showing strong positive defiance, especially when the market is weak or flat, is demonstrating significant independent strength. Buyers are actively choosing it, regardless of overall sentiment.
Spotting Laggards: Conversely, a stock showing negative defiance in a bull market is waving a red flag. Why isn't it participating in the rally?
Contextualizing Signals: A buy signal on a stock that's strongly defying the market to the upside carries more weight. A buy signal on a stock getting crushed relative to the market? Needs much more scrutiny.
Look, I'm not giving you the precise algorithm – that's proprietary. But the concept is straightforward.
Baseline: We take the performance of SPY over the relevant period (50-day or 200-day).
Stock Performance: We calculate the stock's performance over the same period.
Beta Adjustment: This is key. We adjust the expected stock performance based on its Beta. Beta, simply put, measures how much a stock tends to move in relation to the market. A high-beta stock (like many tech names) is expected to outperform SPY in a bull market and underperform in a bear market. A low-beta stock (like a utility) moves less. The calculation accounts for this expected volatility. A high-beta stock needs to beat SPY by more to show positive defiance.
The Score: The final Market Defiance score is the stock's actual performance minus its beta-adjusted expected performance, expressed as a percentage. Positive means it's doing better than expected given the market and its beta; negative means it's doing worse.
Short-Term Defiance: Reflects recent momentum, sentiment shifts, reactions to news or sector rotation. Is the stock currently being favored or shunned by the market right now? Useful for gauging immediate pressure.
Long-Term Defiance: Shows the underlying trend of relative strength or weakness. Has this stock consistently outperformed or underperformed its beta-adjusted expectation over the past year? This often reflects deeper institutional views or fundamental shifts.
Market Defiance is a significant input into the overall Confidence Score you see in the daily Telegram feed.
Positive Defiance: Generally boosts the confidence score. Strong positive defiance (especially long-term) in a weak or neutral market gets a particularly strong positive weighting. It suggests resilience and underlying demand.
Negative Defiance: Generally lowers the confidence score. A stock lagging its peers and the market, even with a technical buy signal, is viewed more cautiously. The beta adjustment ensures we don't unfairly penalize low-beta stocks in a bull market or high-beta stocks in a bear market unless they deviate significantly from their expected behavior.
It’s not the only factor in the Confidence Score – projections, seasonality, fundamentals (like the Caesar Score), earnings proximity all play a role – but Market Defiance provides crucial context about the stock's relationship with the herd.
When you see a signal on the feed, check the Market State and the Defiance numbers provided in the message:
Market: Short-term Bull, Long-term Bull | Defiance: ST +3.5%, LT +8.1% -> Strong stock in a strong market, performing even better than expected. High confidence likely justified.
Market: Short-term Bear, Long-term Neutral | Defiance: ST +2.1%, LT -1.5% -> Stock showing recent resilience against a weak market, though the longer trend is meh. The positive short-term defiance is notable here.
Market: Short-term Bull, Long-term Bull | Defiance: ST -4.0%, LT -9.5% -> Market is strong, but this stock is lagging significantly. Even with a buy signal, the confidence score will likely be penalized. Proceed with caution.
Market Defiance adds a layer of sophistication. It helps distinguish real strength from just riding the market wave. My system quantifies it so you don't have to. Use it.
That's it for today. Need to optimize some database queries.
Caesar