What You Knew About the “Market” Is Wrong

ETFstuffHow would you answer the following question if I gave you just 10 seconds to do so? “What’s the market doing right now?”


If you’re like most Americans, you would most likely cite the movement of the Dow Jones Industrial Average. Most people will say, for example, “the market” is up 100 points!


This is a horrible habit that you should break immediately – especially if want to become a solid technical trader.


The Dow Jones Industrial Average is just an index of 30 multinational and mostly mega-cap (more than $200 billion) blue chips. But people have been programmed by the media to use it as their primary indication of what’s happening in the stock market.


Consider how absurd that is. Due to the typical weighting structure of the major indexes, it’s possible for the Dow to show a gain of only 1%, even while 70% of the stocks in the market are up 10%. Significant strength or weakness is easily masked by major indexes.


If you start viewing the market as small caps, mid-caps, large caps and mega-caps, instead of as the Dow, you’ll have a clearer understanding of the stock market.


 






It’s also a great way to spot new trends faster than the majority of those who follow the market.

 


For example, stocks of smaller companies tend to lead the stocks of larger companies. If small cap stocks are showing significant weakness while large caps are still advancing but fizzling out, it might be a sign of trouble ahead.


When someone asks you what the market



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