{"id":17338,"date":"2010-12-28T13:12:31","date_gmt":"2010-12-28T18:12:31","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=17338"},"modified":"2010-12-28T13:12:31","modified_gmt":"2010-12-28T18:12:31","slug":"the-most-important-stock-market-chart-of-the-week-2","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2010\/12\/28\/the-most-important-stock-market-chart-of-the-week-2\/","title":{"rendered":"The Most Important Stock Market Chart of the Week"},"content":{"rendered":"

Jared Levy, Editor, Smart Investing Daily, TaipanPublishingGroup.com<\/strong><\/span><\/a><\/p>\n

Editor’s Note:<\/strong> When I read Jared’s article, titled “The Most Important Chart of the Week,” in mid-December, I thought to myself, “This isn’t just a short-term opportunity.”<\/p>\n

I think it’s a long-term lesson.<\/p>\n

Jared reminds us that the all-important Dow Jones Industrial Average is only made up of 30 stocks out of some 5,000. And while these companies may be some of the biggest and most influential in the world, they’re hardly a good representation of the market as a whole.<\/p>\n

Indeed, compared to the S&P 500 and the Nasdaq, the Dow has lagged behind in gains this year.<\/p>\n

That’s why I’ve chosen Jared’s article as one of the “best of” Smart Investing Daily<\/em> articles we’ve published this year. I’m reposting this for you in its entirety.<\/p>\n

I hope you can take away a big lesson — that the markets can no longer be pigeonholed into a snapshot of just one index.<\/p>\n

Enjoy, and happy holidays…<\/p>\n

\n

Aside from the somewhat positive fundamentals of both the macroeconomic improvements and individual companies’ improved fiscal health, we have year-end window dressing and some good old statistical (and superstitious) beliefs working in your favor, especially if you are a bull.<\/p>\n

What I have not addressed yet are some of the key technical levels that you need to be aware of. In just about every stock trade I make, I am paying close attention to a minimum of two stock market charts (usually more). I don’t just analyze the stock that my investment is in, but also a large index, such as the SPX, OEX, NDX or similar.<\/p>\n

Don’t Pay Attention to the Dow Jones Industrial Average<\/h3>\n

I do NOT use the Dow Jones Industrial Average, because I feel the index is flawed in that it concentrates on the price of the stock for its weight in the index as opposed to its real value. In addition, to me, 30 stocks out of the over 5,000 stocks that trade on major exchanges is just not a good sample size. But I digress…<\/p>\n

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Learn more from American Wealth Underground<\/em>.<\/a><\/strong><\/p><\/blockquote>\n<\/div>\n<\/div>\n

The S & P 500 Can Show You the Market’s “Hand”<\/h3>\n

Out of all the commonly watched indexes out there, the S&P 500<\/a> or SPX is the preferred barometer of most professional traders, because of its breadth and diversity. The S&P 500 is a collection of about 500 stocks (it varies at times) that cross many sectors. The price levels of the S&P 500 are not only used as major support and resistance for traders, but they can send individual stocks higher or lower.<\/p>\n

There is a unique characteristic about big indexes and ETFs like the SPX and SPY. You would think the index itself is just telling us where stocks are; in other words, it gets its value from the changes in the stocks. But because of arbitrage, the behavior of ETFs and the weighing of certain stocks within that index, it sometimes works the other way around. When roles reverse, the tail wags the dog, so to speak, and the index determines where many stocks are headed. I mean, why do you think experts are always quoting support and resistance levels in the indexes if they were only monitors for the hundreds of stocks within them?!<\/p>\n

So today, I am going to tell you the levels you need to watch out for and where I think we may head from here.<\/p>\n

Economic Calendar<\/h3>\n

This week’s economic docket is chock-full of data and potential market movers. Unlike last week, where the expectations were for quiet sailing, expect movement as we progress through the second week of December.<\/p>\n

Check out the chart below for all the economic data<\/a> and estimates due out this week.<\/p>\n

Chart courtesy of forexfactory.com<\/a><\/em>
\n\"December
\nView Larger Chart<\/a><\/p>\n

The Levels You Need to Be Aware Of<\/h3>\n

The chart of the SPX below tells us much about the current trend and why we need to watch the 1,221 support level very carefully. That number was not only the former high made back in April, but it was also a support level formed back in July of 2008. The recent breakout about this level is and continues to be a bullish sign, but a violation below it could mean the SPX could drop to its next support level of 1,170. If you are currently long and notice the SPX breaking below 1,221, and if it’s looking like it might close below that level, you might want to evaluate that long position for an exit.<\/p>\n

\"View
\nView Larger Chart<\/a><\/p>\n

For now, barring any adverse data this week, the market is struggling higher. However, watch for late-day weakness and note the stochastic hanging out in the overbought area, which is typical, but not something to be ignored. Also keep your eye on the 20-day moving average compared to the 50-day moving average<\/a>. Right now, the 20-day is on top, but converging into the 50. If they cross, that could be our signal that at least the short-term trend is over.<\/p>\n

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Where to find “real wealth”…<\/strong><\/p>\n

If you guessed the U.S., you’re in for a shock. The U.S. economy may be recovering, but it\u2019s nothing compared to the area some analysts are calling the “Global Wealth Zone.” Investors who move their money into the Global Wealth Zone now could more than double their net worth\u2026 but only if you know exactly where to look.<\/p>\n

Act immediately and you could ride his coattails for a 400% gain.<\/p>\n

Learn how you could be banking gains of 102.5%, 45.8% and 204.9% in the days ahead… It’s all in this investment report.<\/a><\/strong><\/p><\/blockquote>\n<\/div>\n<\/div>\n

Don’t be greedy this week and make sure you tell your friends about Smart Investing Daily<\/a><\/em>!<\/p>\n

*Note: By the way, so far Jared’s analysis of the S&P 500 has been spot-on… The index found support at 1,235 before breaking higher. That said, Jared’s levels referenced in this article should still be monitored. It wasn’t a true test of the 1,221 support level, so the S&P 500 could still see a bit of a correction. Should that happen, Jared’s warning of a drop to the next support level of 1,170 should be heeded.<\/em><\/strong><\/p>\n

About the Author<\/strong><\/p>\n

Jared Levy is Co-Editor of Smart Investing Daily<\/a><\/em>, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.<\/p>\n

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.<\/p>\n

He has been featured in several industry publications and won an Emmy for his daily video “Trader Cast.” Jared serves as a CNBC Fast Money<\/em> contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal<\/em> radio and is regularly quoted by Reuters, The Wall Street Journal<\/em> and Yahoo! Finance, among other publications.<\/p>\n","protected":false},"excerpt":{"rendered":"

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