Chapter 8

Market Internals

Examining the Direction of the Market

This chapter is about using market internals. Market internals are a set of tools or gauges that we use to get a better look into the likely direction, continued direction or likelihood of the market reversing. More accurately, they are helping us to determine the veracity of the current trend that exists. In this chapter, we also look at Inter-Market Analysis and how it can affect your long-term view of the market. Before we have this discussion about looking into the internals of the market, though, perhaps we should talk about why we care about the market in the first place.

Many traders like to trade the market itself. I'm one of them, since it offers trading based on pure technical information. The market can be traded in a variety of ways. There are symbols that are known as ETFs, which stands for Exchange Traded Funds. These symbols include QQQ, SPY, QLD, QID, SSO, SDS, DXD, DDM, and many others. They let you trade the entire market they represent by simply trading one symbol. An example of that is shown in Figure 8.1. Many of them allow you to short the market by going long the ETF. This is known as an inverse ETF where the ETF moves up as the market moves down. Many of the ETFs also represent a leverage amount of two or three times the underlying issue. That means that there are symbols that you can trade long that would allow you to be three times short the QQQ or SPY. Many traders also prefer to trade ...

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