The 3 Most Important Stock Index Everyone Should Look At

A person who invest or trades the US stock market would need to look at 3 important stock index everyday. They are:

  • The S&P 500 Index
  • The Dow Jones Industrial Average
  • The Nasdaq Composite Index

When financial news refer to the stock market they actually mean the S&P 500 or the Dow Jones. The S&P 500 index represents the 500 biggest and most profitable companies in the world. The Dow Jones represent the 30 biggest companies that act as a bell weather to the US economy. The Nasdaq represents the technology stocks in the market. Together they are known as the general market.

3 Out Of 4 Stocks Follow The General Market

The main reason why you should follow the general market is because at least 75% of the stocks in the market follow the direction of these 3 indexes.

  • If the S&P 500 index is up 1% for that day, 75% of the stocks in US will also be up.
  • If the S&P 500 index is down 1 % for the day, 75% of the stocks will be down as well.

Periods of rising stock market usually coincides with the biggest bull run in stocks.

In the chart above, you can see that the S&P 500 Index rose from November to December 2016. This was just after the Presidential Election and the market rose dramatically after the uncertainty of an election. JP Morgan, a bank stock rose from $68 to $88 in that short period of time.

Study The General Markets

Since most stocks move in tandem with the general markets, you should pay attention to the major indexes. Some things to note are:

  • Look for support and resistance areas in the S&P 500 Index
  • Look for overbought or oversold levels
  • Check if the S&P 500 is in an uptrend or downtrend
  • Or is the S&P 500 in a trading range?
  • Is the S&P 500 breaking out or breaking down?

If you can answer these questions you will be able to position yourself for some of the biggest move in a stock.

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