By Chris Rowe - Creator: Technical Analysis Millionaire
Sorry for publishing so late today! Have been wrapping up all of the work on my new technical analysis "mini-course" that you can sign up for right now, by clicking here.For all of you who enjoy my weekly "Technical Tuesday" articles... maybe you've been curious about my Technical Analysis Millionaire course but haven't been ready to take the plunge... the mini-course is a great and risk-free way to learn a little bit more about the secrets that helped me make millions on Wall Street.
It's got video lessons, articles, and tools that you can start using immediately. And did I mention that it's free?
Plus, I'll be holding at least one special live webinar just for those of you who sign up for the mini-course, so there's really no reason not to check it out.
TAM members and anyone who took my ISS course: Much of this material will be things you've seen before, but if you'd still like to sign up, be my guest.
Again, the mini-course is free, and you can get immediate access here.
For a preview of one of the mini-course articles, continue reading ...
Do You Have the Internal Strength for This?
If you've studied technical analysis at all, you probably already understand the concept of "market internals". What you might not know is just how important this concept is to your trading and investing success.
Let me explain…
The way I apply market internals in my system is reserved for my paying students, but I had to at least make the concept understood by anyone taking my free mini-course because there’s no way a person can understand the stock market without understanding what’s below.
"Internals"
Most investors know the ”internal market”, also known as the “breadth” of the market, is basically the study of the number of advancing stocks versus the number of declining stocks.
So if a larger number of stocks are advancing, and a smaller number of stocks are declining, the “internal market” is “up” or “strong” or “positive”.
Focusing on the internal market gets me bearish near market tops and bullish near market bottoms.
There are a few very powerful “internal indicators” that tell us more than if a number of stocks are merely “up” or “down”. Some tell us how many stocks in a group are breaking key resistance levels or support levels, moving to buy signals or sell signals, moving above or below key moving averages, or breaking new highs or new lows.
9 out of 10 investors seem to only be mesmerized by a small part of the picture: The external markets.
The “external markets” are what just about everyone focuses on. In the U.S. they’re the S&P500, the NASDAQ, the NYSE and the Dow-30. It’s how these popular averages are calculated that skews the picture.
The importance of constantly focusing on the market “internals” cannot be overstated. In short, it’s what’s really happening in the stock market.
In a nutshell: If four out of five stocks are trading up, and you throw a dart and buy whatever stock that dart landed on, there’s an 80% chance that you would make money. But the fact is that, even if four out of five stocks are trading higher, it’s still possible that the “external markets” (major market averages) are moving lower!
The “external markets” are “weighted indices”. Different stocks in the Dow-30, S&P500, NASDAQ and NYSE have a different amount of influence on the direction of each index.
As of the time of this writing, Exxon Mobil, which has the single highest valuation out of any stock in the stock market, has a 3.7% weighting in the S&P 500. The smallest 100 companies on the S&P500, on the other hand, have a cumulative weighting of 2.75%.
So if the smallest 100 companies in the S&P 500 move up by 10%, and on the same day, Exxon Mobil moved down by 10% while all other stocks in the S&P 500 did not move higher or lower, the S&P 500 index would actually move lower!
If you didn’t get that, or if you think you may have misunderstood, then go ahead and re-read the last paragraph because it wasn’t a typo.
In other words, people who don’t focus on internals/breadth would believe that "the market" declined, even though we had 100 times as many winners as losers.
This isn’t some earth-shattering news that nobody knows about. Many investors know this already, but don’t use it to their advantage.
How, exactly, can we use knowledge about the internal market to our advantage? The fact is that the internal market tends to LEAD the external market.
What that means is that the internal market changes direction before the external market does, and can offer huge clues to anybody paying attention.
Market tops and market bottoms are where the biggest, most costly mistakes are made. They also present the biggest opportunities. So focusing on internals, and looking for divergences between the internals and externals, is essential when investing and trading.
"Strength"
I take bullish positions in the stocks with positive relative strength, and I take bearish positions in the stocks with negative relative strength.
- Positive Relative Strength: When a security outperforms the market over a significant time frame.
- Stock market moves up by 10%, while XYZ stock moves more than 10% higher.
- Stock market moves down 10%, while XYZ stock either moves up, or moves lower by less than 10%.
- Negative Relative Strength: When a security underperforms the market over a significant time frame.
- Stock market moves up by 10%, while XYZ stock either moves down or moves less than 10% higher.
- Stock market moves down 10%, while XYZ stock moves more than 10% lower.
These two concepts barely scratch the surface of my approach. What’s most exciting about my Technical Analysis Millionaire methodology is when my students realize that it’s easy to see the market clearly, and while it may be sad, we have a huge advantage over most market participants who have been trained to look at the wrong thing.
The market is a battlefield with opponents, winners and losers. If it weren’t for so many people doing the wrong thing, it wouldn’t be so easy for us to run circles around them.
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An internationally respected authority on options, 9-year Wall Street veteran, and co-founder of Institute for Individual Investors, Chris Rowe spun out profitable trades for his Trend Rider members for 7 years, ending with his retirement in 2012. While most professionals consider an options trader who is right on 3 of 10 trades to be very good, Chris was right on the majority of his trades! Now, through his weekly "Technical Tuesday" Tycoon Report articles, Chris Rowe helps hundreds of thousands of investors across the globe, demonstrating the benefits they'll realize by taking a dispassionate, business-like approach to both stock and options trading. In his thorough and detailed, yet easy and accessible courses, you'll learn directly from Chris how incredibly easy it is to consistently make money - in bull markets, bear markets and flat markets - when you use a proven system for trading success. |
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