Broader Influences Affecting Stocks
In the preceding two chapters, stock direction and entry/exit timing were reviewed in the context of a neoclassical approach to technical analysis. The material reviewed was enhanced with the addition of some basic data analysis and comparisons showing how qualified trends that are confirmed do have a higher probability of trend continuance as compared to suspect trends. A distinction was made between trends and trades that led to trade failure analysis based on a differing exit criteria.
What was not considered was the larger picture—the broader influences that necessarily affect a stock. It has been said that 75 percent of all the stocks move in the same direction as the general market,1 and though the data behind this number have never been published as far as I can tell, the research I have done seems to support the notion that the percentages are this high—if not higher.
In particular, every stock represents some company, and that company is engaged in the sale of either products or services or both. Unless the company is a complete monopoly in their industry, then there are other businesses that compete in the sale of the same goods and services. For the purposes of trading, companies that compete are categorically arranged into industry groupings which are in turn aggregated into larger groupings generally referred to as subsectors. Eventually subsectors are combined to form the broadest sector groupings—the major stock sectors. ...