Page 170 - THE MARKET WHISPERER

166 PART 6 - Indices, Sectors And Crystal Balls

market specialists on TV channels such as CNBC or Bloomberg will usually
be heard saying something like,
“The S&P rose today by 18 points.”

These specialists expect you to know at any given moment the index
point value. Currently, for example, the market is around 1,800 points, so
you will need to understand that a day’s rise of 18 points is an increase of
1.0%. The index’s value in points is the normalized price of 500 different
stocks, but it is not a tradable index. In other words, you cannot buy and
sell that index itself. To trade in index-linked values, the “Exchange Traded
Fund” (ETF) was invented, and will be explained further.

Previously, I noted that the S&P 500 is the most important index for the
intraday trader. Why? Because 60% of a stock’s movement will be dictated
by index movement. In other words, the stock you have bought will rise or
fall after the S&P 500 has risen or fallen, and you will profit or lose chiefly
by being dependent on market direction.

Would you like proof? Observe the index in the chart below, where you
can see the connection between the S&P and the stock:
Comparing the Intraday Behavior of Apple (AAPL) and S&P 500 (SPX)

In the chart above, you can see Apple’s intraday movement in five-
minute candles. If you thought Apple had a life of its own…you were
wrong! All intraday movement is determined at the outset by the market
movement. The market moves first, and individual companies’ shares