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|Wednesday, June 22, 2005|
Not much action at all in the indices today. Volume was on the light side and the markets just could not seem to get going. The DOW dropped 11 points to close back under 10600. This in of itself is a negative, in my opinion. Couple this with the fact that the NASDAQ got turned back again today after testing resistance again at 2102. The NASDAQ ended the day flat along with the S&P. This 2100 level has proven to be very tough at this point but do not give up yet. Last week, we predicted that this would be the week that we would break through 2100. Our reasoning was due to the fact that options expiration for the month is now over. We still think that the NASDAQ can pull it off however; the resistance level now has risen to 2102 since the NASDAQ has hit this level twice and failed. A break above 2105 should be your signal to load up the truck on the long side. If the NASDAQ does breakout, I look for GOOG to lead the way and clear $300.
Tonight's charts are dedicated to stocks coming off bottoms and may be good candidates for powerful moves up, coming out of those bottoming bases that they have formed. We showed a chart of LU recently with the same type pattern. Since there is not much to talk about right now until the markets breakout, let's talk about the market itself.
What is “The Stock Market”?
It is not unusual for people to talk about "the Market" as if there were a common meaning for the word. The reality is, “the Market” has many indexes with many different segments that do not always move in tandem. Some indexes are up while others are down. Some sectors go up while some sectors go down for days, weeks or months at a time. A clear understanding of how the various indexes are created and how they differ may help you to make sense of daily movements in the market.
If you ask someone how "the market" is doing, they would probably answer based on what they see in the DOW. The DOW is the oldest and most well known index in the world. It includes the stock of 30 of the largest and most influential companies in the country, each with annual revenues over $7 billion.
The DOW represents about a quarter of the value of the entire U.S. stock market, but a percent change in the DOW should not be interpreted as a definite indication that the entire market dropped by the same percent. This is because the DOW is price-weighted while all other indexes are market cap weighted. The basic problem is that a $1 change in the price of $100 stock in the index will have the same effect on the DJIA as a $1 change in the price of a $20 stock, even though one stock changed by 1% and the other by 5%. This is not an accurate reflection of a market move on any particular day however, because the DOW is made up of some of the most well-known companies in the United States, large swings in the DOW generally correspond to the movement of the entire market, but not necessarily on the same scale.
The S&P 500
The Standard & Poor's 500 (SPX) is a larger and more diverse index than the DOW. Made up of 500 of the most widely-traded stocks in the United States, it represents about 70% of the total value of U.S. stock markets. Because the S&P is market-weighted, every stock in the index is represented in proportion to its total market capitalization. In other words, if the total market value of all 500 companies in the S&P dropped 1% today, the value of the index would drop by 1%. Compare this to the DOW, where a 1% movement by all stocks in the DOW would not cause a 1% change in the index. Market-weighting is a better measure of the market's total movement. The S&P includes companies in a variety of segments, including industrial companies, utilities, financial and transportation. However, it does not include many technology stocks. This lack of tech stocks diminishes its ability to reflect the market as a whole, in my opinion.
The Wilshire 5000
The Wilshire 5000 is sometimes called the Total Market Index because it includes more than 7,500 of the 10,000 plus stocks publicly traded in the United States. It is extremely diverse, with stocks from every industry. In my opinion, it is as close to a perfect measure of the entire U.S. market as we can get on any given day.
The NASDAQ is the exchange where most technology stocks are traded. The NASDAQ Composite Index is a market value weighted tracking of all stocks traded on that exchange. This index includes more than 5,000 companies, including some that are not based in the United States. Although it is known for technology, the NASDAQ includes stocks from other industries as well. It includes large and small firms, but unlike the DOW and the S&P 500, it also includes many speculative companies. Consequently, its movement generally indicates the performance of the technology industry and speculative small cap stocks.
The Russell 2000
The Russell 2000 is a market value weighted index of 2,000 small cap stocks. The Russell 2000 Index gained increasing popularity during the 1990s, when small-cap stocks soared. The Russell 2000 measures the daily performance of small companies and is not dominated by any one industry.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
For New Members
For all of the new members with us, please make sure to read the link “How to use Bulletin” at the bottom of the Bulletin page on the website. It is critical that you know how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented.
We have added the earnings link for each stock on the bulletin. To access the link for earnings, you can either use the link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
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