Why the S&P 500?

August 23, 2007 at 9:27 pm · Filed Under Broader Market, Educational 

Some people might have questions as to why I use the S&P 500 as my index of choice for reporting on the broader market. Typically, if you watch the news they tend to quote the Dow Jones and the NASDAQ more, but I don’t believe those are as good of an indicator as the S&P 500. The Dow is just 30 of the largest, most widely held companies in the market. While this gives a good indication of how a few of the blue chips are doing, it’s a little too focused for my tastes. The NASDAQ is a little too tech heavy to depict the broader market. While not perfect, the S&P 500 gives a better overview of how large cap stocks are doing (along with the general direction of smaller caps). In the end though, all three of the major indices typically have the same peaks and valleys, so whatever you use won’t make a big difference if you’re just using them to judge an up verses a down market. The key is to use the broader market indicators to adjust your aggressiveness and whether you’re taking bullish or bearish positions.

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