What Makes the Pendulum Swing?

What Makes the Pendulum Swing?

Most of you have probably seen a pendulum before. That rod with a weight at the end of it in an old grandfather clock, or in a metronome if you’ve played an instrument, or even the swing at your neighborhood playground.

A pendulum is a weight at the end of a fixed point, such as a string or rod, that goes through periodic motion. In a clock, each swing measures a second and, in the metronome, it measures a pulse or a beat.

Like a pendulum, markets also go through periodic motions we call trends. We buy in an uptrend, sell in a downtrend. But what are some of the factors that determine trend? How can a trader anticipate a continuation of the trend or a change?

While the speed of the pendulum is determined by the length of the string or rod, there are several factors that impact trends in a market. This week was a classic example of a few of them. You do not have to be a news junkie but keeping simply being aware of what’s going on the world around you certainly help. Here are a few things that impacted the markets this week and that may continue affecting them in weeks or months to come.

Israel – Gaza Conflict

The Israel – Gaza conflict has a long and complex history which predates the first World War, but you do not need to know a whole lot about it to understand its impact on global markets. Having a cursory understanding is more than enough.

– This war is taking place in the middle east which accounts for over 30% of global oil supply. Any escalation could potentially affect oil supply causing prices to increase. For as long as this war drags on, traders need to be aware of this.

House Speaker Election

The lower house of the US Congress for the past 2 weeks has been without a speaker. In a nutshell, this means that bills cannot be brought before the house, hindering the legislative process (laws cannot get passed). One major law that could be affected in mid-November is the federal budget that funds the government. If this is not resolved, there is the risk of a government shutdown. This would be bad.

Earnings

Publicly traded companies release quarterly earnings and revenue reports. Traders should pay attention to these numbers, especially from larger corporations, $300B and higher market capitalization as they can sometimes move the markets. Tesla’s earnings and revenue this week were weaker than expected. This only added to the bearish sentiment.

Weekly High Impact Reports

Not all reports are worth watching. An effective trader should know the ones that move the markets and their likely impact. An example of a major report is the CPI. It helps us understand the level of inflation and how consumer prices have changed. These are by no means the only factors that impact the markets but they are the main ones that did so this week. Being aware will help significantly improve your understanding of and confidence trading the markets.


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