This is a global market environment. The S&P500 goes up and down based on the collective money flow from investors all over the world, not just within the borders of the United States. There are some people still fighting the civil war who simply don’t understand this concept. US Stocks don’t move up and down based on what is happening in America. What happens in the United States politically, economically, tax-wise, etc is just a tiny tiny piece of a humongous puzzle. This is a global market environment and the sooner you recognize that the bigger the advantage you will have over others who have not yet accepted this concept.

Even if you only trade US Stocks, or stocks local to where you live, understanding what is happening globally is essential to recognizing the direction of the underlying trend for the asset. And this trend identification is step 1 to market analysis. Today I went through every stock market index in the world to see if there is more good or more bad out there. Here are a few stand outs:

(click charts to zoom in)
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My weekly run through the S&P500 components is one of my favorite parts of the work week. I put on some music and go through all 1000+ charts. Remember we use the weekly charts to get structural perspective and then the daily timeframes to define more tactical opportunities: 2 charts for each of the 500 stocks. I then break down the index into 11 Sectors and run my analysis of stocks one sector at a time. This way it helps give me a better feel for that particular area within the entire stock market. To take it one step further, I then break down each of the 11 sector workbooks of charts into sub-sectors. So for example, in the “Energy Sector” there will be 4 sub-sectors: Integrateds, Services, Exploration/Production and Refiners.

The reason I’m really pressing this process lately is because of just how sideways the market has been for U.S. Stock Indexes. In order to get clues as to which way this consolidation will revolve is to look under the hood and see what’s going on. Does the body have some strong organs left to keep it alive, or is this it? You can’t just look at a car or look at a person and be able to properly diagnose the problem, or the good health for that matter. You need to open them up and take a good look. A mechanic is an expert at analyzing the car, the Doctor knows the human body and we as market participants need to understand the insides of the market. [Read more…]