When Markets Talk To You
Nicholas Santiago | Dec 12, 2012 12:38AM ET
Everyone in the world would like to know what the next move is going to be on the SPDR S&P 500 ETF Trust (SPY), ProShares Ultra QQQ (QLD), or any other major index in the stocks market. The way to figure this out is to simply watch the stock market for clues. The markets will never come out and just tell you that a turning point is around the corner in a major stock or commodity index, you will need to investigate the charts.
I always tell traders, we technical traders are really in the archeology business. We are always examining the past to try and figure out what is coming in the future. Sure, you can watch CNBC, or some other financial news outlet for your information, however, you will mostly receive opinions.
On the flip side, the charts that technical traders use do not care who you are, what country you are from, the color of your skin, or your religion. A chart is an equal opportunity employer and the data is the data.
There are a few ways to tell when the markets are going to change the trend. First, it is important to watch and follow charts of leading stocks and leading sectors, or industry groups. When these leading sectors start to show weakness or make potential lower tops it is a sign that the trend in the major stock indexes could be ready to change.
For example, when Apple Inc (AAPL) rolled over it should have alerted every trader and investor on the planet that the recent trend from last October 2011 in technology could be ready to reverse course. As you all know, APPL is the most loved and followed stock in the world by institutions, independent traders, and investors. When APPL declined most investors and traders just stood still in disbelief. This is just one example of how the stock market talks to us.
Recently, the home-builder sector has been extremely strong leading the stock markets higher. Well, this important sector is now showing signs of weakness and could be problematic in the future. Traders and investors need to watch when a past leader falls as it could be a sign of the trend changing course. Just look at the recent pullback in stocks such as Toll Brothers Inc (TOL), and D.R. Horton Inc (DHI), these stocks have started to rollover and could be signaling further downside in the future.
These same stocks lead the stock markets higher earlier in 2012. Now leading stocks such as Sherwin-Williams Co (SHW), and Mohawk Industries Inc (MHK) are dipping as well. Simply follow the leaders, the charts of these stocks and sectors will tell you more than you think.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.