How Market Conditions Affect Stocks

Market conditions have a tremendous affect on the price action of stocks, and failing to realize this is one of the biggest mistakes traders make. That is why it is equally important for a trader to not only follow the charts of the stocks they trade, but also the charts of the major market indexes, like the Dow Industrials, S&P 500, Nasdaq, and other indexes.

Are the major market indexes suffering from repeated bouts of high-volume selling? Are they in confirmed uptrends with clear signs of institutional accumulation? Or, are they going primarily sideways and having trouble making any upward progress?

The simple fact is that fully 3/4ths of all stocks tend to follow the price action of the overall market, so why would traders expect even stocks with strong fundamentals to perform well in down market conditions? Conversely, what would keep traders from buying stocks with strong fundamentals once the market indexes are in a confirmed upturn?

A little-appreciated fact is that like so many canaries in a coal mine, leading stocks are often the first to struggle when overall market conditions deteriorate. But they are also the first to recover when market conditions start to improve.