Brandon Wendell, CMT
Brandon Wendell
In the Extended Learning Track program we have been watching the broad markets for influence on individual stocks. I have been demonstrating a method of watching the broad market indexes that reduces the need for multiple charts. I have decided to revisit an article I wrote a while ago that describes this method.
Those of you who have attended Online Trading Academy’s Professional Trader Course know that we always have a chart of the S&P 500 or NASDAQ to view in addition to our stock chart in the class. On average, 50-60% of a stock’s movement will be directly related to the movement and trend of the broad market. 30-40% of the stock’s movement will be influenced by the sector of that stock. That leaves only 10% of influence from the company itself.
I am sure you have noticed that the stocks moving with the market trend often move faster and farther than those trying to move against it. The other choice we must make is which market should we be following, the S&P 500, the NASDAQ, DJIA, or the Russell 2000? It comes down to which of those indexes is leading in the current trend. Most traders would suffer from information overload from trying to watch the charts of those four indexes as well as their stocks. I have found a solution for keeping an eye on the markets while focusing on your stock trade.
TradeStation software allows me to chart the four indexes in one chart. This is something I have used extensively in the XLT programs to identify market trend and potential confirmation at supply and demand levels. I use the “Percent Change” feature to compare all four indexes and easily identify the leader in the dominant trend. I like to use the ETF’s: SPY, QQQ, DIA & IWM to represent all of the indexes. You could easily substitute the indexes themselves or even the futures contracts. Since the futures are listed on different exchanges, you will have to adjust your chart to local time instead of “Exchange” time for them to overlay. You can see the finished chart below.
To create the chart, I start with a chart of the S&P 500. If you right click on the chart you can select “Insert Symbol” and then add the next ETF to your chart. You need to make sure you have the “Prompt for Format box checked when you add the symbol. You will need to go to the Scaling Tab and change the Sub-Graph to 1.
Once you have the second symbol on the chart, you will right click again and select “Percent Change Chart” and select “Enable.”
You can then add the additional ETF’s one at a time in the same manner. You can change the style and color of the lines when you add them if you keep the “Prompt for Format” box checked. Once all four are added your chart will look like this.
Finally, you must choose a starting point for the comparison. On intraday charts, I use the open. I right click on the chart at the line that represents the beginning of the day. Under the “Percent Change Chart” menu, I select “Calculate from This Bar.” That will start the price comparisons at zero from the open of the day. If I am using a daily chart or want to compare a longer move, I will start the chart from a major top or bottom and see when the trend is weakening from the leading index changing direction.
For more information on how we can use this tool, come join me in the Extended Learning Track of Online Trading Academy or even attend the Advanced Technical Analysis course. The skills you will pick up in these classes can greatly improve your trading.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD slumps below 1.1750 as USD benefits from risk-aversion
EUR/USD comes under renewed bearish pressure in the European session and trades below 1.1750 following a recovery attempt earlier in the day. The US Dollar gathers strength and weighs on the pair as investors seek refuge in the wake of Israel and the United States' joint attack on Iran.
GBP/USD targets 1.3500 barrier near moving averages
GBP/USD rebounds from the daily losses, trading around 1.3450 during the Asian hours on Monday. The technical analysis of the daily chart indicates an ongoing bearish bias, as the pair trades within a descending channel pattern.
USD/JPY: Japanese Yen remains depressed vs. USD amid Middle East tensions; lacks follow-through
The USD/JPY pair catches fresh bids at the start of a new week and climbs back closer to last week's swing high, though it lacks follow-through and remains below the 157.00 mark through the Asian session. A coordinated US-Israel military strike on Iran marks a dramatic escalation of geopolitical tensions and unsettles global markets.
Editors’ Picks
Oil retreats from seven-month high, WTI holds above $71.00
Cure oil prices started the week with a huge bullish gap and the barrel of West Texas Intermediate (WTI) touched its highest level since June above $75 as markets reacted to the closure of Strait of Hormuz following the US and Israel attacks on Iran. Although WTI retreats in the Euroepan morning, it holds comfortably above $71.
Gold surges on safe-haven demand, closes in on $5,400
Gold benefits from intense risk-aversion on Monday and climbs toward $5,400, setting a fresh monthly-high in the process. Tensions in the Middle East remain high as Israel and Hezbollah continue to exchange strikes following the US-Israel joint attack on Iran over the weekend.
EUR/USD slumps below 1.1750 as USD benefits from risk-aversion
EUR/USD comes under renewed bearish pressure in the European session and trades below 1.1750 following a recovery attempt earlier in the day. The US Dollar gathers strength and weighs on the pair as investors seek refuge in the wake of Israel and the United States' joint attack on Iran.
Bitcoin, Ethereum and Ripple under pressure as key supports face breakdown risk
Bitcoin, Ethereum, and Ripple prices trade on the back foot at the start of this week on Monday, after extending losses in the previous week. BTC is on the brink of a breakdown, ETH is capped below key resistance, and XRP risks a crack of the trendline.
The market is paying for insurance, not apocalypse
As expected, this morning felt less like a Monday market open and more like a fire drill. Futures screens flickered red. S&P contracts down almost 1%. Nasdaq off 1.2%. Brent leaped 13% through $80. Gold rose 1.6% toward $5350 before paring some gains. The dollar is strutting mildly. The Swiss franc is quietly doing what it always does in a storm, catching some safe-haven flows.
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