Most traders and investors don’t realize that the U.S. stock market is capitalization-weighted.
That means names with bigger market caps carry greater percentage weights in the index, and vice versa for stocks with smaller market caps.
So despite the fact that the S&P 500 and Nasdaq 100 are home to 500 and 100 stocks, respectively, the bigger a stock is, the more voting power or control it has over the broader market.
They’re so big that they can control the movement of most other stocks in the index. So six or seven big names can completely control the entire index or sector.
That’s why market internals are so important to watch…
Why Market Internals Are Important to Watch
As you’re about to see in today’s video, both the Nasdaq and S&P 500 hit all-time highs on Monday and Tuesday, respectively.
If I was just some guy you found on the street, I’d probably tell you the market looks great because it just made an all-time high.
I mean, how could things get any better than that?!
But I know better…
When you look at the market internally, things look a lot different.
We’re in a strong uptrend, but price is diverging and the relative strength index can’t sustain these levels — a big sign that the market could be overbought.
If you’re one of my long haulers, then you already know I get serious when it comes to momentum levels.
But if you’re just starting out trading or are new to WealthPress, this should be an eye-opener. And I mean by that is I’m about to show and tell you how I look at the stock market from an internal perspective.
Check out my short video on why market internals are so important. And before you head out, be sure to share your thoughts in the comments section below.
Don’t forget to subscribe to our YouTube channel if you haven’t already so you can be notified as soon as we post our next video!
P.S. Legendary trader Tom Busby has come out with some shocking news…
He’s discovered a little-known stock market pattern that occurs on a handful of stocks every Tuesday at 9:30 a.m.
So all traders have to do is place a simple trade Tuesday morning and come back to close it out for a big gain on Friday.
But that’s not even the best part…
This strategy means traders are out in cash for the weekend. So there’s no need to worry about breaking headlines that could crush trading accounts over the long weekend.