00:00if you open up any software you're going
00:01to be confronted with an endless list of
00:03technical fundamental economic data at
00:06your disposal now it's great because
00:08there's so much stuff out there that you
00:10can analyze but it really starts to
00:12bring up the question of which of these
00:13indicators are useful how do I apply
00:15them and how do I put this together into
00:18a a systematic process that's simple and
00:20effective so having traded for just
00:22about 20 years now I've kind of you know
00:25tested most of these tools studied a lot
00:27of the different data and I'm going to
00:28talk today about what I believe are the
00:30five indicators the five tools when used
00:33together give you the best overall view
00:35of what the Market's doing what stocks
00:37are doing and these are the tools that I
00:39use to help me figure out when to buy
00:40and sell stocks before we jump to the
00:43individual tools I think there's an
00:45important perspective that we all have
00:46to have when we use these indicators
00:48these indicators are really trying to
00:50you know be kind of like our x-ray
00:52within Market action to figure out
00:53what's really going on so what we want
00:55to do is when we make our decisions we
00:58want to bring in as much data as
01:00possible in an effective way rather than
01:02just use the same data over and over so
01:05a common mistake I see is people will
01:07bring up something like a price
01:09oscillator I think a very popular one is
01:11the RSI index or stochastic and they'll
01:14kind of put up four or five of these
01:16similar indicators you know percent R
01:18stochastic RSI and they'll look at the
01:21chart and if most of them have a similar
01:23signal they'll feel like it's a stronger
01:25signal all of these indicators are
01:27basically taking Market data
01:29manipulating in just slightly different
01:30ways and presenting it to you so you're
01:32not really getting different viewpoints
01:35just like when you're trying to make an
01:36important business decision you're going
01:38to want to speak to your lawyer you're
01:39going want to speak to your accountant
01:40you want to speak to your uh significant
01:42other you're going to want to speak to
01:43maybe other stakeholders within the
01:45company you're going to want to get
01:46different voices different opinions to
01:48get a true picture of you know what kind
01:51of decision you should make so the same
01:52thing the same principle comes to the
01:54stock market so all the tools we're
01:56going to talk about today are really
01:57about bringing in different data points
01:59to help give you a real clear kind of
02:02overall picture so the first indicator
02:04that I use is one of the defaults that I
02:06always look at is the RS line relative
02:09strength is a critical part of my market
02:13analysis now of course the way I
02:15approach markets where where I'm trying
02:17to find great growth stocks for
02:19significant advances I also don't want
02:21to take on a lot of risk so I Look to
02:23limit my risk the strategy I'm employing
02:27is going to you know really determine
02:28which indicators I use so because I'm
02:30looking for these great growth companies
02:32companies that are are winning in their
02:33field winning in their industry relative
02:35strength analysis is just a fundamental
02:38building block of what I do now I found
02:41cycle after cycle in the market if you
02:43can identify who the true leader is of
02:46that cycle you're going to outpace all
02:49other investors it's not always easy to
02:51do but if you can nail it there's
02:52nothing more powerful now a leading
02:54stock in my opinion is not just a stock
02:57that goes up the most I think that's one
02:58of the biggest mist mistakes that people
03:00do when they're looking at stocks
03:01they're trying to find who's the the
03:03best stock in the market right now a
03:05real leading stock has two important
03:08elements it should outpace all other
03:10stocks when the market is performing
03:11well and when the Market's pulling back
03:14and correcting it should it should
03:16decline less than the other stocks so
03:19I've had to learn this the hard way
03:20sometimes i' see a leading stock I would
03:22go by a stock that's not quite as strong
03:25thinking that there'll be a catchup move
03:27never really happens that way the leader
03:30the slower less powerful stock will
03:32advance less and the moment the market
03:34takes a pause the weaker stock will
03:36break harder than the leader so trying
03:39to find the leading stock in any Market
03:42is absolutely critical so the RS line is
03:44a very simple tool all all it does is
03:47take a look at the stock versus the
03:49index and it basically divides the stock
03:51by the index if the stock is
03:53outperforming the index the relative
03:55strength line will be climbing so now an
03:57easy way to kind of bring this together
03:59is to put a moving average on the
04:01relative strength line this way if it's
04:05uptrending you know that not only is it
04:07you know uh recently been outperforming
04:09the market over the period that you
04:11select let's say you use a 50-day
04:12average of the RS line you'll say for
04:14the last 50 days which is almost about a
04:16quarter uh this has been outpacing the
04:19index I found this to be so important
04:22and with about 10,000 stocks just on us
04:24markets alone to select from you need to
04:26be able to kind of bring it down to a a
04:29a work able number and so the first step
04:31I'll look at is who has the best
04:33relative strength now this may be um a
04:37little bit to kind of convey just
04:38through a video there's also a free
04:40white paper I put out where I talk about
04:41all these different indicators you can
04:42download it in the link below the video
04:44uh and there's a little more kind of uh
04:46there's all different helpful charts and
04:47there's also uh free uh chart layouts
04:51which you can basically replicate my
04:52charts right inside trading view super
04:55easy to use so if you find that helpful
04:56you can use the link below and jump on
04:59so let's take a look at this next chart
05:01you can see throughout the entire
05:02Advance where the stock was
05:04significantly outpacing the market where
05:06it had its really powerful gains the
05:08entire time the RS line was above its
05:11moving average and finally when the RS
05:14line broke below its average uh the
05:17stock lost its leadership role and
05:18started to underperform significantly so
05:21now this is important because we're not
05:22looking at just the price action itself
05:25we're not just looking at that same data
05:27that you know uh you can just run
05:28through a million indicators we're
05:30looking at the price action but relative
05:32to the index in this case the S&P 500 so
05:35it's that relative performance which is
05:37a new data point we're bringing into the
05:39equation that we're analyzing so that
05:42really looks at the relative
05:43relationship so the next indicator we're
05:44going to look at is the up down volume
05:46ratio this indicator was popularized by
05:48legendary investor William O'Neal the
05:51concept was simple he wanted to
05:52understand is there more money flowing
05:53into the stock or flowing out of the
05:55stock over the last 50 days so simply
05:58this indicator all it does is if the the
06:00stock closes up for the session it
06:02counts that volume as buying volume and
06:04if it closes down for the session it
06:06counts the volume as selling volume and
06:08it looks over the 50 days and it just
06:10does the math and tells you is there
06:12overall more buying or more selling uh
06:15the way that the oscillator is
06:16calculated basically uh anything above
06:19one means there's buying anything below
06:21one means they're selling so if we take
06:23a look at this next chart and what's
06:25interesting is you can also use this on
06:27indexes like the QQQ so rather than
06:30simply look at Price action you can get
06:32a pretty good understanding of whether
06:34or not there's buying or selling going
06:36on the market just by looking at volume
06:38over this period to make it simple
06:40whenever it's over one I colored the
06:42background of the indicator green so you
06:44can see all of the very strong healthy
06:46uptrends all took place with a backdrop
06:50of the up down volume ratio being above
06:52one so again now we're looking at uh you
06:55know how do we time our entries and
06:56exits into stocks and also how do we
06:59identify the right environments we want
07:00to operate in so by using this both on
07:02indexes and on individual stocks it
07:05helps you to always know where is the
07:06money flowing if we take a look at this
07:09this this next chart here you can see
07:11that throughout the entire downtrend the
07:13up down volume ratio was below one and
07:16that just really was showing you that
07:17there was net selling going on in the
07:19stock you would you're better off
07:20looking for other opportunities
07:21elsewhere again most of what we do is
07:24just trying to filter down the large
07:26Universe of stocks uh to those that have
07:28the most potential speaking of markets
07:30speaking of trying to find uh different
07:33Trends within markets using the up down
07:34volume ratio in other ways one of my
07:36absolute favorite tools is looking at
07:39net highs or lows so essentially what
07:42this looks at is is it compares the
07:43number of stocks making 52 we highs each
07:46day versus the number of stocks making
07:4852- we lows what I do is I take the
07:50difference and I call that the net highs
07:52or lows if there's more 52e highs we
07:55have net highs if there's more 52e lows
07:57we have net lows now this a really
08:02tool because it's it's looking at the
08:04market as a whole indexes have become
08:06very weighted to just these very large
08:09technology companies like apple
08:10Microsoft Google Nvidia and that's great
08:13if if your only task is to you know
08:16basically replicate or slightly beat the
08:18indexes that's a more relevant
08:20discussion is what are the indexes doing
08:21if you're looking for disruptive
08:23companies if you're looking just for
08:24trade ideas understanding what most
08:26stocks at large are doing is a lot more
08:29relevant to you than just the index
08:31itself so by looking at the number of
08:32stocks making 52 we highs and 52- we
08:35lows you get a better gauge of what the
08:37health is in the market
08:40now at looking at the extremities this
08:43tells you you know a 52e high is an
08:45important event so is a 52e low you know
08:47for a 52e high an investor has to be
08:49willing to pay a higher price than any
08:51other investor has for the last year and
08:54the opposite for a low so when there's
08:57more stocks making 52 we
09:00highs almost by definition that reflects
09:03a healthy Market it affects it reflects
09:05a market that shows more net progress
09:07under the surface um the net selling and
09:11so again if we take a look at this chart
09:12of the NASDAQ you can see all of the
09:14wonderful uptrends take place with the
09:16green bars underneath the chart that
09:18shows there's net highs when there's red
09:19bars that shows that there's net lows
09:22what I also find very helpful is this
09:24really helps me to understand how
09:27aggressive I should be in my portfolio
09:28positioning that's another big part of
09:30the strategies and and if we have a
09:32strong period of net highs that tells me
09:34I should be more aggressively positioned
09:35if we have a period where there's a lot
09:38of uncertainty one day we have net highs
09:39another day we have net lows we don't
09:42need to be completely out of the market
09:44we don't need to be fully invested on
09:46margin in the market we can kind of say
09:48okay maybe we should take a a more
09:49measured pace and keep a cash buffer and
09:52be a little bit less invested so again
09:55if you take a look at the white paper
09:56there's even a little more detail on
09:57this indicator and there's many ways I
09:59use it but it's just a vital tool it's
10:01just a core part of my process it's
10:03helped me to avoid every single Major
10:05Market correction it's always helped me
10:06to kind of be participating in every
10:08Major Market uptrend and for myself
10:10looking for Trends in the market uh
10:12there's no better tool you can find than
10:14net highs and net lows next up is the
10:17high yield index so you know a lot of
10:20investors will be concerned about what
10:22is the Federal Reserve going to do are
10:23they going to raise interest rates are
10:24they going to lower interest rates what
10:26the Federal Reserve controls uh directly
10:30or everyone speaks about is a federal
10:31funds rate that's an overnight interest
10:33rate it's a very short-term interest
10:35rate most companies I'm sorry well
10:37rather almost all all companies don't
10:39borrow at the federal funds rate they
10:40borrow at some other rate and especially
10:43most growth companies or those companies
10:45that are a little more speculative they
10:46have to pay substantially higher than
10:48the federal funds rate that federal
10:49funds rate is really just reserved for
10:52banks who operate within the financial
10:53system to borrow overnight so I found
10:56that rather than worrying about what the
10:58Federal Reserve is doing with the
10:59federal funds rate I want to look at the
11:01high yield index what is the interest
11:03rate that companies are borrowing at who
11:06are of lower quality this is important
11:09because if you take a look at the
11:11financial crisis in 2008 the Federal
11:14Reserve knew there was an economic
11:15problem so they were cutting interest
11:17rates throughout that entire time and so
11:20if you were simply looking at interest
11:21rates you're saying well you know the
11:22Federal Reserve is cutting interest
11:23rates that should help stocks but again
11:25that is the short end of the interest
11:28rate curve you if you look at the US
11:3010-year yield that also fell over that
11:32period because there's there's no risk
11:34component to the US government bonds the
11:3610-year bond uh there may be some
11:39inflation the government may have
11:40problems but you'll always get paid even
11:42if you have to print the money to do it
11:43you'll get paid on your bond if you're
11:46lending money to a young company or a
11:49less certain company or a company that's
11:50under JS you don't know if for certain
11:54if you'll get that money back so the
11:56high yield bonds reflect two things
11:58they're bonds so they they do reflect
11:59interest rates but they also reflect
12:02risk the risk of will I get that
12:04repayment so if you take a look again
12:06now 208 whereas the US 10-year bond was
12:09fall the US 10-year yield was falling
12:12the federal funds rate was falling high
12:14yield bonds their yields were climbing
12:16significantly not because of the
12:18interest rate component but because of
12:21component and really that's what makes
12:23up the stock market it's interest rates
12:25control valuations but also risk uh
12:28perceived risk is going to control
12:29control how aggressive investors are in
12:31bidding up or bidding down stocks so
12:33that's why I believe when when I want to
12:34have a a clear picture of what our
12:36interest traits doing I go to the high
12:39yield index that's my go-to that's
12:41really what's important to me the last
12:44tool that I use um and really this is in
12:46addition to price so price is an
12:48important part of my process I look at
12:49chart patterns I look at different tools
12:52and not necessarily always to kind of
12:53predict what will come next I think
12:55there's a misn where people think
12:56everyone's predicting with charts it's
12:58also just phenomenal tool for risk
13:00management if you have if you can build
13:02a reason as to why you're buying at this
13:04point and you look at the chart and you
13:06you believe there's institutional buying
13:08you'll know where you should exit if
13:09that changes so it allows you to kind of
13:11navigate markets a lot more efficiently
13:14uh but the last actual indicator is the
13:16moving average to me it's just a simple
13:18tool and just like Albert Einstein you
13:20know one of the smartest meant ever
13:21walked the worth the world said you want
13:23to make things as simple as possible and
13:25no simpler so I think the moving average
13:27is a great way if you want to know what
13:28is the trend of the stock or the market
13:31you're looking at at least the trend
13:32that's important to you if you're an
13:34intermediate term investor probably a
13:3650-day moving average if you're a
13:38long-term investor probably a 200 day
13:40moving average simply plotting these
13:42averages on your chart and seeing on
13:44whether or not the trend is climbing and
13:46whether the uh the price is currently
13:49above or below that Trend that just
13:51gives you a great insight into whether
13:52or not the stock is trending or high
13:54higher or lower not perfect but it gives
13:57a great view of what's going on in fact
13:59I put a whole video together about why I
14:02think moving averages are are the
14:04probably the best indicator you can use
14:06by itself um and you can find that video
14:08here at the end of the at the end of
14:09this video if you want to learn more so
14:11those are the five tools I use as you
14:13see it's really about bringing different
14:15perspectives there's the RS line looking
14:17at relative strength there's the up down
14:19volume ratio looking at volume net highs
14:21and lows looking at Market breadth there
14:23is the um high yield index looking at
14:26interest rates but a specific interest
14:28rate to also represent risk and interest
14:30rates and lastly moving averages to help
14:32look at Trends this really helps to
14:34build a holistic View and I go through
14:37all this process every week every day
14:39and by keeping it simple keeping it
14:41efficient I get a a great representation
14:44of what's going on in the Market at all
14:45times and it's a very quick and simple
14:47process so again if you find this
14:49interesting if you want to learn more
14:50there's a free white paper you can kind
14:51of download below um you can follow me
14:53on Twitter at Trader MC Caruso you can
14:56follow my website at Caruso insight.com
14:57uh we'll be be back soon I hope you
14:59enjoyed the video talk to you next time
