Yesterday marked the second day the market finished up…
SPY 2-Day, 5-Minute Candles Chart; SteadyTrade
Am I happy about it? Yes.
Will we continue moving in this direction and make up the entire pullback this week?
I have no idea. We might make up some of what we lost, but all of it in a week?
Probably not.
Do I know how the market will react to tomorrow’s headlines?
Not a clue.
This brings us to a discussion of broad market performance and what it really means in the big picture.
The Stock Market Is a Leading Indicator
A leading indicator is something that moves before the economy or a specific sector shifts.
It gives you a heads-up on what might happen next.
The stock market is one of the best leading indicators out there.
The market isn’t perfect. It’s full of emotions, speculation, and, especially in the short term, some outright nonsense.
But over time, it has a consistent track record of predicting economic trends before they show up in the data.
What has it done in the past to prove this?
The Market Bottoms Before the Economy Recovers:
Look back to March 2009. The financial crisis had wrecked everything. The economy was still in shambles, unemployment was high, and businesses were shutting down.
And what happened?
The stock market bottomed and started ripping higher.
Why?
Because smart traders and investors were already looking ahead…
They saw the Fed stepping in, stimulus coming, and an eventual recovery.
The lesson here is that if you wait for the economy to fully recover before going long, you’re already late.
The Market Tops Before the Economy Tanks:
The same thing happens at market tops…
Stocks will start rolling over months before the economy shows real weakness.
Sector Rotation Tells You Where the Money’s Going Next:
Not all parts of the market move at the same time. Some lead, others lag, and that’s where you can spot big opportunities.
Here are some examples. Remember, this doesn’t always apply, but it has happened in the past.
- If defensive stocks like utilities, healthcare, and consumer staples start outperforming? Investors might be getting cautious.
- If growth stocks, small caps, and speculative names start running? Risk appetite is back, and momentum is heating up.
- If financials and industrials are strong, that could be a sign that the economy is picking up steam.
Follow the money to see which sectors will be in favor. Big players rotate capital into different sectors before the headlines catch up.
Learn about the latest hot sector in my recent blog post.
How Traders Can Use This to Their Advantage
Here’s how you use the market as a leading indicator in your daily trading:
Watch the major indexes:
Are the SPY (S&P 500) and QQQ (Nasdaq) trending up or starting to stall?
Pay attention to market leaders:
If the biggest names like Apple Inc. (NASDAQ: AAPL), Amazon (NASDAQ: AMZN) and NVIDIA Corp (NASDAQ: NVDA) start struggling while the indexes hold up, that’s a red flag.
Look for unusual volume:
If certain sectors are seeing heavy volume spikes, it’s often a clue that big money is making a move.
Use sentiment as a contrarian indicator:
When everyone is euphoric and FOMO-buying, we’re usually near a top.
On the other hand, when people are panicking and calling for a crash, we’re often closer to a bottom.
Use the Right Tools:
To follow the market trends and spot all of the above, you need a robust trading platform.
It should include real-time data, charting, technical indicators, and more.
My top pick is StocksToTrade and I use it every single day. It has all the features you need to stay ahead of the game.
And right now, you can get two weeks of both the STT platform and our Breaking News Chat service for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
Final Thoughts…
The stock market isn’t perfect, but it’s one of our best forward-looking indicators.
Smart traders don’t just react to today’s news—they anticipate tomorrow’s moves.
Watch how the market reacts to news, track sector rotations, and pay attention to what’s leading. Because if you wait for confirmation in the economy, you’re already too late.
And remember this…
If you’re day trading penny stocks, you don’t need to worry about what the broad market is doing.
Penny stocks don’t care! For the most part, they move independently of everything else.
Just focus on the reliable, high-probability day trade setups that have worked repeatedly over time.
For additional trading mentorship, subscribe to my StocksToTrade Advisory service.
You’ll get a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade