You should be able to recognize what moves the stock market down and how to counteract those movements in the forex market. We are going to focus when the stock market goes down like the present.

When people start seeing the stocks go up, they become excited. Contrarians suggest that the majority is bound to be proven wrong in not too distant a future when an overwhelming majority of investors begin to think alike.

Some jump in early. As the stock market begins to move higher and higher, more and more investors jump in as they now believe in the upward movement. While most stay on the sidelines trying to figure out whether the stocks will go more up or not!

Majority who has been sitting out decide they cant afford to miss out on any more profit making opportunities and they jump into the game finally near the top of the uptrend. The savvy investors who have been enjoying the bullish run decide to take profits and run at about the time that these investors are jumping in.

As investors begin to unload their positions, suddenly there is a mass fire sale and the market crashes. The selling generated by these people eventually begins to pull the market down and people start to panic.

S&P 500 represents the market capitalization of 500 largest US companies that are traded on the US Stock Markets. The S&P 500 Stock Index is the most recognized US stock market index in the world. You can track the movement of the S&P 500 through an ETF, the Standard & Poors Depository Receipts (ticker symbol SPY).

More and more investors invest in US stocks when the US economy does well. S&P 500 index rises. The value of the US Dollar rises. S&P 500 index is closely correlated with the US economy. US economy does well, it goes up. US economy does not do well, it goes down.

On the other hand, more and more investors want out of the US stocks when the US economy does not perform well. S&P 500 index falls! The value of the US Dollar falls. The easiest way to monitor S&P 500 is to invest in SPY. You can predict the direction of any currency pair involving US Dollar on one side by monitoring the movement of the S&P 500.

Tracking SPY is the easiest and the best way to get a clear perspective on what is happening in the US economy and the market place. Invest in SPY to see how the stock market is going to affect your portfolio.

The forex market will immediately react to some short term movements in the US stock market. However, the forex market is more susceptible to the longer term influence of the stock market. You need to keep track of SPY whether you invest in SPY or not. You can watch SPY on a weekly basis.