Many traders, even those well versed in technical analysis, do not fully use the power of technical analysis for making stock predictions. The reason being is that they only use technical analysis with the instrument they are trading. While this can make sense, it’s much more effective to use technical analysis as a way to determine relationships across markets.
The most common of these relationships for the stock market is the stock index futures relationship to individual stocks.
Tactic #1 The Best Stocks Don’t Follow The Index Futures
If the S&P 500 futures are in a steep decline, screen the markets for stocks climbing higher.
These stocks have historically outperformed when the index reverses. This enables the smart day trader to get in before the move begins providing an enormous advantage over the trader who doesn’t watch the futures. Keep in mind that outside influences such as earnings or other corporate news can affect the integrity of this strategy. It works when all things remain equal.
Tactic #2 Watch the TICK
The TICK is the number of NYSE stocks that are increasing in price minus those that are failing. Monitor this indicator for excessive readings in both direction and the corresponding movement in the Index Futures to determine the acumen of buying or selling your stock.
Here’s what to watch for: If you are long a stock and the TICK indicator hits plus 1000, hang on as this may be a sustained move. However, if the Index Futures start to sell off at a plus 1000 TICK reading, SELL as your stock is likely to follow.
The converse holds accurate at a minus 1000 TICK and you are short a stock, pay close attention to the futures, a reversal here in the Index Futures is a good signal to close the short.
The reverse also holds true, watch for a minus 1000 TICK reading combined with a reversal in the futures to provide a promising chance to purchase stocks.
Tactic #3 Buy aggressively after a sharp futures sell off
The day after a strong index futures sell off is often a good time to buy stocks. This is a simple yet highly effective tactic. Bargain hunters often come into the market on days after heavy index futures selling bidding up prices, making this an excellent buying opportunity.
