Forex Trading And US Stock Market (Part II)
We are going to focus when the stock market goes down like the present. You should be able to recognize what moves the stock market down and how to counteract those movements in the forex market.
When people start seeing the stocks go up, they become excited. Contrarians suggest that the majority is bound to be proven wrong in not too distant a future when an overwhelming majority of investors begin to think alike.
Savvy investors jump in early. They are the lucky ones who will reap all the fruits of early entry into the up-trending market. As the stock market begins to move higher and higher, more and more investors jump in as they now believe in the upward movement. While most investors stay on the sidelines still undecided trying to figure out whether the stocks will go more up or not!
Majority who has been sitting out decide they cant afford to miss out on any more profit making opportunities and they jump into the game finally near the top of the uptrend. The savvy investors who have been enjoying the bullish run decide to take profits and run at about the time that these investors are jumping in.
The selling generated by these people eventually begins to pull the market down and people start to panic. Suddenly there is a mass fire sale as investors begin to unload their positions and the market crashes.
S&P 500 Stock Index represents the market capitalization of 500 largest US companies that are traded on the US Stock Markets like NYSE, AMEX and NASDAQ. The S&P 500 Stock Index is the most recognized US stock market index in the world. How to keep track of S&P 500 Stock Index? You can track the movement of the S&P 500 through an ETF, the Standard & Poors Depository Receipts (ticker symbol SPY).
When the US economy does well, S&P 500 index rises. More and more investors invest in US stocks. The value of the US Dollar rises. S&P 500 index is closely correlated with the US economy.
Conversely, when the US economy does not perform well, S&P 500 index falls! More and more investors want out of the US stocks. The value of the US Dollar falls. By monitoring the movement of the S&P 500, you can predict the direction of any currency pair involving US Dollar on one side. The easiest way to monitor S&P 500 is to invest in SPY.
Invest in SPY to see how the stock market is going to affect your portfolio. It is the easiest and the best way to get a clear perspective on what is happening in the US economy and the market place.
You need to keep track of SPY whether you invest in SPY or not. While the forex market will immediately react to some short term movements in the US stock market, it is more susceptible to the longer term influence of the stock market. You can watch SPY on a weekly basis.
