What You May be Missing if You Only View the Dow Jones and SP500

Feb 15, 2013: 5:46 PM CST

As intraday or short-term traders, we often get caught up in our particular futures contracts, ETFs, or favored indexes and we can easily miss the bigger picture in related or similar indexes, especially on the larger frame.

That’s the case currently for those of us (I’m guilty too) who focus most of our attention on the Dow Jones or S&P 500 indexes.

Did you know that the NASDAQ and Russell 2000 indexes paint a dramatically different picture on the monthly frame?

Let’s take a look at the standard S&P 500 and Dow Jones indexes – particularly the key levels on which everyone seems to be focusing at the moment (the 2007 highs) – and see a different picture in the Russell and NASDAQ.

Dow Jones Industrial Index:

We’ll group these two similar markets together for the moment.

The key focal point in the S&P 500 is of course the October 2007 high of 1,575 with the index roughly 50 points beneath this easy-reference level.

Those watching the Dow Jones – and even the television media – have been breathlessly focusing on 14,000 (“Look!  It closed above it!”) and then the all-time high of 14,198 (roughly 14,200) also formed in October 2007.

While we in the short-term trading world ponder the probabilities of a near-term continuation to or even above these levels, we may missing something very obvious to those traders who focus on either the NASDAQ (technology-based) or Russell 2000 (small-cap) indexes.

Let’s see these indexes and why the picture is very different than the S&P 500 or Dow Jones:

Russell 2000:

Do you see the difference?

Both the NASDAQ and Russell 2000 have long since broken above their respective October 2007 high.

The Russell 2000 completed this feat first in April/May 2011 (yes, 2011!) while the NASDAQ broke its respective October 2007 high also in April/May 2011.

Though both indexes turned back (reversed) from this interim high, both indexes have since broken their 2011 highs.

The NASDAQ completed the feat first in February 2012 while the Russell has struggled under the key resistance level (870) until recently with the January 2013 breakout.

To repeat – while the S&P 500 and Dow Jones Indexes have not yet broken above their respective 2007 highs and traders are formulating probabilities of these indexes continuing up to break to new highs – the NASDAQ and Russell 2000 indexes yawn at the excitement.

Of course, Russell and NASDAQ-focused traders are well-aware of these accomplishments, those of us who focus our attention on the Dow and S&P 500 may not be aware that the oft-mentioned October 2007 peak has been scaled by the tech-heavy and small-cap based equity indexes.

By the way, the NASDAQ – while at new recovery highs – still is no where near scaling its all-time high near 5,000 achieved in March, 2000.

We do best to be aware of broader related markets and not get caught up in the endless exciting details of our own favorite indexes/markets.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!


4 Responses to “What You May be Missing if You Only View the Dow Jones and SP500”

  1. Tradingwiththeaveragejay Says:

    Great Post

  2. robert landry Says:

    So can we draw any conclusions from this? Are you saying that the S&P and Dow are likely to break out because the Nasdaq and Russell already have?
    Also, I'd like you to address some MACD divergences that the monthly charts seem to show.

  3. Bernie Says:

    Remember the $vle also

  4. Tuesday February 18 -- Abandon All Hope, Ye Who Enter Gold Says:

    […] 658 About equities: What You May be Missing if You Only View the Dow Jones and SP500 | Afraid to Trade.com Blog […]