Saturday, January 13, 2007


There are as many ways to analyze the health of the market as there are ideas floating around in the heads of market pundits. The most important one you should consider in your investment decisions whether a beginner, experienced trader, or just someone who wants to keep an eye on the market while someone else is charged with your money, is the S&P 500.

The Standard and Poors 500, (spx) is the most commonly used benchmark for the state of the overall market. It is a weighted, (larger companies are a bigger contributing factor) basket of widely held stocks, 500 of the largest companies in the US Market. The Dow Jones Industrial Average , although widely used, is comprised of only 30 stocks. It is considered by many as secondary to the S&P 500 because of its narrow breadth. The S&P 500 includes the Dow stocks and is considered more accurate due to its broader base.$SPX&p=D&yr=0&mn=6&dy=0&i=t36552994554&r=2768

Note: In this chart of the S&P 500. It has stayed nicely above its 50 day average, (blue line) and continues to climb. An excellent indicator of a bull market trend.

One can look at a chart of the S&P 500 over long periods of time and see the correlation of market moves and historical events such as wars, elections, Nixon's resignation, recessions, and past oil embargo. Look at an intermediate period and you can see the ups and downs correlated to inflation, treasury yields, and many more economic events. The short term charts reflect things such as investor/consumer sentiment, earnings reports, and corporate fraud.

You have heard the saying 'with the tide all ships rise'. The inverse is true also. If there is a sudden drop in the S&P 500, 3 of 4 stocks will drop also, regardless of their quality or recent strength. It is the benchmark for which all mutual funds are measured against. Keep your vigilance and monitor the trending of this market indicator and you will possess one of the most important tools to assist you in attaining investing success.

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