Which Index is the Most Important to Watch?

By: Marty Chenard | Wed, Dec 30, 2009
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Here are some of the most common indexes investors watch along with their differences:

- The DJI (Dow Industrials) has the big multi-national companies ... but only 30 stocks.

- The S&P 500 has the broadest group of Sectors and is considered a good measure of the economy by big Institutional Investors.

- The NASDAQ 100 is a nice mix of stocks but it doesn't represent Financials and Oil stocks.

- The NYA (NYSE) stock exchange has a huge variety of a couple of thousand stocks, and it also recognized for where the "program trading" occurs. (According to the New York Stock Exchange, program trading accounts for about 30% to 46.4% of the trading volume on the NYSE every day.

So, the NYA or NYSE index is the index where the big money plays and executes large transactions or "basket of stocks" transactions.

The DJI and the NASDAQ 100 are more specialized and focused compared to the NYA. The NYA has more diversity and big players.

Since Institutional Investors are more likely to be initiating program trades and large size transactions, it makes sense to track the "core holdings" held by Institutional Investors ... since that would tell you what Institutions are doing relative to "most of their invested money".

And ... since they are responsible for over half of the daily volume in the stock market, it makes sense to watch and follow them for the market's direction ... which is why we post such a large variety of data and charts on our paid subscriber site.

So, let's look back over the past 6 weeks to see how each index has actually performed.

In the chart below, we calculated the percent move from November 16th. to December 29th. Here is what we found:

Surprisingly, the NYA and the "Institutional Index of core holdings" have had the smallest rises. Since Institutional Investors are responsible for over 50% of the market's volume, let's dissect what they have actually been doing since November 16th. in today's second chart ...

Chart 2: Below is our hourly chart of Institutional index movement since November 16th.

When looking at the Institutional chart below, you will see a wedge, or megaphone pattern that actually started on November 16th. ... after the index made it up to our projection level on November 11th.

What is amazing about what has happened since then, is that the Institutional index has oscillated above and below our projection level in a higher-lower pattern that has formed the megaphone pattern.

What is this saying?

It is saying that Institutional investors have essentially been in a sideways trading range for the past 6 weeks.

The Institutional Investors are NOT going to stay in that pattern. There will be a breakout that will initiate a trend and not a trading range. Yes, the trend is your friend, but the current Institutional trend is really going sideways.

What investors are REALLY waiting for, is which way this pattern will breakout. The breakout and continuation direction will the investable trend and it will occur soon.



Marty Chenard

Author: Marty Chenard

Marty Chenard
Asheville, NC 28805
Tel: 828-296-1200

Marty Chenard is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools and stock market models. As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL. He is an advanced technical analyst and not an investment advisor, nor a securities broker.

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