Page 184 - THE MARKET WHISPERER

180 PART 6 - Indices, Sectors And Crystal Balls

Summary: Market Indices

It’s time to make some order out of all the information above.
If you’re working with just one screen (which I hope won’t be for too

much longer), the chart that needs to cover nearly one-quarter of the
screen is the ES if you have access to futures, or the SPY if not.

If you have two or more screens, devote between one-third to half of
one screen to the ES alongside the NQ (or the SPY and QQQ). I allocate
about three-fourths of a 23-inch screen to these two indices.

Display the information in five-minute intraday candles. The larger
your screen is, the more trading days you’ll be able to display at once. I
suggest your display covers at least three trading days. Showing a three-
day history helps me search for the support and resistance points over the
last few, most current days.

Spot Test

Answers follow.
1. You are about to buy a stock that is about to break out, whereas the ES

index jumped a few minutes ago to a new high. Should you buy?
2. You want to buy a stock currently running up, whereas the S&P 500 is

trending down. Should you buy the stock?
3. You want to buy a stock, and at the same instant, the S&P 500 breaks

out to a new high. Should you buy?
4. You want to execute a short on a stock, and it looks to you that the S&P

500 index is about to break down to a new low, whereas the NASDAQ
100 is trending up in a reverse pattern to the market index. What should
you do?
5. You want to buy a stock just as the NASDAQ 100 is breaking out, but the
S&P 500 has not broken out yet. Should you buy?

Answers:
1. As noted, 60% of a stock’s movement is dictated by the movement of

the market index. If the index has gone up and your stock didn’t jump
higher together with it, something doesn’t sound right. Maybe a large-
quantity seller is preventing it from going up? Maybe other buyers
aren’t interested? It is reasonable to assume that the market will self-
correct fairly soon for at least part of the highs, which means the stock
will likely drop rather than rise.
Conclusion: don’t buy, or buy only a small amount with a close stop
order, to protect yourself.