Overview
The use of indices can be quite a handy
instrument for the technical analyst when
choosing where to go next. In this newsletter
we will cover some of the indices available
as well as apply a combination of technical
indicators against a few of the more popular
indices.
Definition
Index: An index is a representational
(numerical) value of an exchange/industry
group/market by using the sum (or weighted
sum) of a group of stocks/bonds that represent/are
part of that particular exchange/industry
group/market.
Proposition
In general, if
the value of an index moves up, over 50%
of the industry that the index represents
should also be moving up. This of course
can be slightly skewed through various calculation
methods (ie: sum, weighted sum, etc..) however,
it is the end goal of every index to represent
that industry accurately since if it is
not accurate it is not useful. So with a
reasonably high level of comfort we can
assume this rule.
How does this
help the technical trader? By examining
the index the trader should be able to glean
what the direction is for the majority of
stocks within that sector.
Example
In this example
we will only cover a couple Dow indices
however, there are quite a few more than
just Dow. Click for a sample list of available
indices - Dow
Jones - NYSE
- AMEX
- NASDAQ
- TSE/TSX.
In the following examples we have also
employed trendlines,
20
& 50 day SMA, CCI
(specifically the CCI-50) and the MACD.
For the first example we will use the Dow
Jones Industrial Average (DJIA).
A look at the DJIA components also shows
a similar suggestion as the charts. The
5 day average is down/flat while the 50
day average positive.
(click
for larger image)
Some other useful indices
While the three index charts shown above
will hopefully be useful there are a plethora
of other indices to choose from covering
every sector.
Have a look through our index lists and
we are sure you will find something new
for your trading strategies.
- Dow
Jones - NYSE
- AMEX
- NASDAQ
- TSE/TSX
-
- Click
for excel file of the DJIA components
Need more education?
Check out the main
education page.
If you missed
something or need clarification let us know!
We like to hear from you at info@chartfilter.com
