Measuring Market Strength: Technical Primer
BALTIMORE (Stockpickr) -- There's an old saying on Wall Street that "it's a market of stocks, not a stock market." In large part, that's true -- single stocks often trade in directions that are divergent from the broad market; identifying them is the domain of the successful trader.
But even with that in mind, it's a huge mistake to underplay the importance of the stock market as a whole.
That's because, clever sayings aside, the vast majority of stock movements are highly correlated with one another and with the collective market itself. That's become more evident than ever in the last few decades, as index funds became the most popular investment choice for Americans' retirement portfolios. With exposure to a diversified basket of stocks that's designed to track "the market," these funds are directly impacted by losses in the indexers they track.
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