Charts of QQQ and NDX shown below.

Our previous post indicated in its title that the indexes have signalled that it’s time for buying stocks once more after a period of watching from the sidelines, and that title was based on the chart indications that showed the S&P 500 stock index had, last week, reversed its downward path, moved back up, breaking through resistance levels and had established a new upward trend. Our hope is that trend will continue and we will watch the charts for confirmation of that.

Our post also listed several stock’s that we would wish to buy for our previously mentioned “Stock market basics paper trading portfolio # 3” that we have referred to from time to time these last few weeks while we have waited for the S&P to reverse its recent downtrend and to give us the signal that the time is right for buying stocks again. For traders it is customary that they have a “Watch List”, a list of stocks that have already been compiled, checked, and qualified as potential trading candidates. The pre-qualified stocks on the watch list helps simplify and speed-up the decision-making process for buying stocks when prompt action is necessary.

Exchange Traded Funds as an alternative to buying individual stocks
However, it might be interesting to consider the situation where a person may not be able to identify individual stocks to buy. If that occurs, it might be a good time to take a position in an Exchange Traded Fund (usually abbreviated to ETF), of which there are many. To keep things simple, and for the paper trading purposes that we use as examples for those who are in the learning stage of the stock market basics processes, it is suggested to paper trade at least one of the funds of the major stock indexes, those being the DIA fund for the DOW, the QQQ fund for the NASDAQ, or the SPY fund for the S&P 500. The action of the ETF’s mirrors the action of their exchanges as can be readily seen by comparing their respective charts – for free stock charts go to StockCharts.com. The charts shown below illustrate the similarity of the trading patterns of the Index Fund and its Index.

Brief definition of ETFs
Without going into detail, an Exchange Traded Fund (ETF) is not unlike a mutual fund, in the sense that the funds compile their appropriate group of stocks that represent the nominated topic of the fund. In the case of the ETF’s, that would be a group of stocks chosen from the stocks that trade on their respective stock exchanges, sometimes referred as “stocks that track the index”. ETF shares can be traded at any time of the trading day and have high liquidity, meaning that there are always buyers and sellers available to complete a transaction, subject to the bid or ask being met of course.

The least costly of those 3 ETF’s is the Nasdaq’s Power Shares QQQ Trust, with the symbol QQQ, also unofficially referred to as the Q’s. QQQ closed today, July 5, at $58.26

Check  out this link for an explanation of Nasdaq’s 100 Index

Here are the charts of QQQ and the Nasdaq 100 Index – it can be seen how similar they are.  Click on charts for enlarged view

Chart of QQQ July 5

Chart of QQQ July 5


Chart of NDX July 5

Chart of NDX July 5

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Watch for Tomorrow:
There will be an explanation of ETF versions that can provide a bigger return, dollar for dollar.
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Related posts:

  1. Yes, Indexes Signal It’s Time for Buying Stocks
  2. Trading the NASDAQ Index with ETFs and Options as an Alternative to Buying Shares
  3. A Case for Buying Options Instead of Buying Stocks
  4. At Last, Charts Signal Time for Buying Stocks? Maybe!
  5. Buying stocks — But First, Before We Start
  6. The Stock Market Basics Approach to Buying Stocks
  7. You Can Win or Lose When Buying Stocks, Know When to Exit

Filed under: Stock Market Basics

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