How To Stock Trade Using the Nasdaq and NYSE
December 31, 2009 by Steve Wyzeck
Filed under Stock Market
The New York Stock Exchange frequently called the senior exchange, in part because it has been the longest established and in part because firms listed on that exchange have a tendency to be among the biggest and most well-known corporations in the world.
Nasdaq, which has lesser standards for listing than the New York Stock Exchange, used to be considered as an area for merely smaller, speculative companies. Even though stocks of that manner continue to be found in this trading sector, lately, major corporations such as Microsoft and Intel, among others, have elected to remain on Nasdaq rather than seeking a listing on the NYSE. Several companies consider jointly listing on both Nasdaq and the NYSE. Though the number of Nasdaq’s bigger corporations listed is increasing, Nasdaq-listed companies, as a cluster, tend to be more speculative, more technology oriented, and smaller in size than those listed on the NYSE. The total daily trading volume on Nasdaq, however, now often surpasses the daily trading volume on the NYSE.
Both indices are inclined to be very much correlated in the direction. The Nasdaq Composite Index tends to go up and fall at rates that are between 1.5 and twice that of the NYSE. Correspondingly, the Nasdaq Composite Index is likely to decline more quickly than the NYSE throughout declining market periods.
Relative strength relationships among both indices are regularly affected by the nature of public opinion concerning the stock market. When investors are positive about the economy and stocks, they are more apt to place capital into speculative growth companies and to take risks with smaller, budding corporations and technologies. When investors are more or less pessimistic concerning the economy and stocks, they are more likely to concentrate investments into more established, stable, defensive companies and to prefer dividend return as well as capital appreciation.
The stock market yields superior gains during periods when the Nasdaq Composite Index leads the NYSE Index in relative strength. That’s true not just of the Nasdaq Composite Index. The Dow Industrials, S&P 500, and the NYSE Index all are inclined to perform best during periods when the Nasdaq Composite Index leads the NYSE Index in relative strength. That is not to say that circumstances are necessarily bearish when the NYSE Index leads in strength. Market action has normally been neutral when the NYSE Index outperforms the Nasdaq Composite Index. There are winning periods when the NYSE leads in relative strength. However, these also are apt to be the periods when most serious market declines take place. Investments made during periods when the NYSE Index leads the Nasdaq Composite Index in strength are expected, on balance, to more or less just break even.
Here are the steps involved in calculating the Nasdaq/NYSE Index Relative Strength Indicator. These are carried out at the end of every trading week. When established, the signal of this indicator stays in effect for a full week, until the next computation takes place.
To generate the Nasdaq/NYSE Relative Strength Indicator, you have to divide the weekly close of the Nasdaq with the close of the NYSE Index. Fortunately, we possess a tool that can automatically perform this for us.
Using Stock Charts website, you can break up two tickers by a colon to automatically divide the two. Enter $compq:$nya. Set the chart time frame on Weekly, and add a 10 period (week) moving average. That’s it!
As the line moves up, the Nasdaq is beating the New York Index, and when the line moves down, the New York Index is beating the Nasdaq.
If the Nasdaq/NYSE Index relative strength ratio stands above its ten-week moving average, consider the Nasdaq Composite to be leading the New York Index in relative strength. This is the time to buy or go long. If the Nasdaq/NYSE Index relative strength ratio stands below its ten-week moving average, consider the Nasdaq to be lagging the New York Stock Exchange in relative strength, which means you should park yourself on the sidelines.
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