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The New York Stock Exchange often called the senior exchange, in part because it has been the longest established stock exchange and in part because firms listed on that exchange have a tendency to be some of the largest and most reputable businesses in the country.

Nasdaq, which has inferior standards for listing than the New York Stock Exchange, used to be thought of as an area for just smaller, speculative companies. Although stocks of that class continue to be found in this trading sector, more recently, major corporations such as Intel and Microsoft, among others, have elected to remain on Nasdaq instead of seeking a listing on the New York Stock Exchange. A number of companies consider jointly listing on both Nasdaq and the New York Stock Exchange. Even though the number of Nasdaq’s bigger firms listed is increasing, Nasdaq-listed companies, as a cluster, tend to be more speculative, more technology oriented, and smaller in size than those listed on the New York Stock Exchange. The total daily trading volume on Nasdaq, however, now regularly surpasses the daily trading volume on the New York Stock Exchange.

The Nasdaq Composite Index and the New York Stock Exchange Index have a tendency to be very much correlated in the direction. The Nasdaq Composite Index tends to go up and drop at rates that are between 1.5 and twice that of the New York Stock Exchange Index. In the same way, the Nasdaq Composite Index is likely to decline more speedily than the New York Stock Exchange Index throughout declining market periods.

Relative strength relations concerning the Nasdaq Composite Index and the New York Stock Exchange Index are regularly affected by the nature of public opinion concerning the stock market. While investors are positive about the economy and stocks, they are more apt to place capital into speculative growth companies and to take risks with smaller, budding corporations and technologies. When investors are relatively negative regarding the economy and stocks, they are more likely to concentrate investments into more well-known, stable, defensive companies and to seek out dividend return as well as capital appreciation.

The stock market yields superior gains during periods when the Nasdaq Composite Index leads the New York Stock Exchange Index in relative strength. That’s true not just of the Nasdaq Composite Index. The Dow Industrials, S&P 500, and the New York Stock Exchange all are likely to perform best during periods when the Nasdaq Composite Index leads the New York Stock Exchange Index in relative strength. This is not to say that conditions are necessarily bearish when the NYSE Index leads in strength. Market action has typically been neutral when the NYSE Index outperforms the Nasdaq Composite Index. There are winning periods when the NYSE leads in relative strength. Still, these also tend to be the periods when most dangerous market declines take place. Investments made during periods when the NYSE Index leads the Nasdaq Composite Index in strength are apt, on balance, to more or less just break even.

Here are the steps involved in constructing the Nasdaq/NYSE Index Relative Strength Indicator. These are carried out at the finish of every trading week. After established, the signal of this indicator stays in effect for a full week, until the next calculation takes place.

To create the Nasdaq/NYSE Relative Strength Indicator, you have to divide the weekly close of the Nasdaq with the close of the New York Stock Exchange. Fortunately, we have a tool that can automatically prepare this for us.

Using the Stock Charts website, you can split two tickers by a colon to automatically divide the two. Enter compq:nya. Set the chart time frame on Weekly, and add a 10 period (week) moving average. That’s it!

When the line moves up, the Nasdaq is outperforming the New York Stock Exchange, and when the line moves down, the New York Stock Exchange is outperforming the Nasdaq.

If the Nasdaq/NYSE Index relative strength ratio stands above its ten-week moving average, consider the Nasdaq Composite to be leading the New York Index in relative strength. This is the time to buy or go long. If the Nasdaq/NYSE Index relative strength ratio stands below its ten-week moving average, consider the Nasdaq to be lagging the New York Stock Exchange in relative strength, which means you ought to take a seat on the sidelines.

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