Today we are going to talk about Dow Theory. One of its tenets says: “Indices Must Confirm Each Other”. Therefore, I find interesting to study several indexes, and do a comparison between S&P , Nasdaq and DJIA. They move in a similar manner most of times, but they have some important fundamental differences.
The S&P 500 is the main index, and the most representative of US stock market, because it encompasses 500 companies listed on NYSE and NASDAQ.
The Dow Jones Industrial Average measures the performance of only 30 companies – but they should be very large and well-respected! Despite of its differences between SPX , they have similar movements.
The Nasdaq-100 measures the performance of the 100 largest non-financial companies listed on Nasdaq. It moves a little differently than SPX and DJI, and it’s focused on the ‘Tech Stocks”.
Historically, the Nasdaq-100 is the “fastest” index, and it’s impressive how resilient it was during the COVID crash. We are on a recession, yes, but the tech stocks didn’t suffer its impact too much – and probably they won’t suffer to much (in fact, some stocks here are benifeting from this situation).
But what I find interesting to notice is that Nasdaq-100 killed its bear market completely and did an ATH recently – even during such pessimistic times. Meanwhile S&P and DJIA seems more cautious, and they didn’t recover entirely from COVID crash.
I wonder if the market is turning into a new era, where the tech stocks will reign. The monthly chart seems pretty curious to me:
Would this be a sign that the world is going to change forever? I’m very cautious about any prophetic statement, and I find this distortion on our indexes the “new normal”. As a swing trader, I can’t take advantage of this, but as an investor it is something to notice, at least.
Either way, I find the market as the best place to grow wealth through time, and it’s wise to do monthly investments on good companies. But imagine if you invest a lot of money at once during a peak, only to see some profits 15 years later? Of course, even if you bought at the peak of the Dotcom bubble you would still be profiting today, but still… this is not cool.
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Very cool insights, thanks for sharing!
Thank you for the support. Yes, this is something to think about