Nathan_Black

S&P vs NASDAQ vs DJIA

SPCFD:SPX   S&P 500 Index
Hello my friends! Let’s study a little today! Those who follows me are already familiarized with my trading approach at some degree – no indicators, just candles and volume , a lot of Price Action and Dow Theory, and you want a deeper content about technical analysis and behavioral finance check my website in the link below.

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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Comments

great content, once again, never disappointing.
+5 Reply
Nathan_Black ProjectSyndicate
@ProjectSyndicate, Hello my friend! Thank you very much for the kind words!

My best regards to you.
Reply
great analysis! thank you for sharing
+4 Reply
Nathan_Black RedKTrader
@RedKTrader, Hello Red! Thanks for the support, my friend, I'm glad you liked it!

Best regards.
Reply
"The S&P 500 stock market index, maintained by S&P Dow Jones Indices, comprises 505 common stocks issued by 500 large-cap companies and traded on American stock exchanges (including the 30 companies that compose the Dow Jones Industrial Average), and covers about 80 percent of the American equity market by …" (quoted from google search) the indices are pretty much the same. All the dow stock are in the the SPX and the SPX includes the larger companies listed on the NDQ. The Dow list the largest price because it contains those higher priced stock. Same goes for the ndq. You could literally trade all three by looking at just one. But that is a waste. Just pick on or the other and trade that one. There is also the Russell which is the other side of the spectrum being the smaller companies. However if you include the russells on your chart it would look the same as well only different price. There is a theory I call murmuring. "Murmuration refers to the phenomenon that results when hundreds, sometimes thousands, of starlings fly in swooping, intricately coordinated patterns through the sky."Stock almost always move together. Like in a flock of birds occasionally a few will get out of sink but otherwise they all move together. There lies the idea of buying the index instead of the stock. Buy the flock not the bird. They all generally fly in the same direction anyway. Buying the flock though keeps you from picking the errant bird and loosing all your money. To me this also cracks the "diversification" nut regarding stock anyway.
+1 Reply
Nathan_Black JamesPowell
@JamesPowell, You are absolutely right James! But let's not forget that are different levels of correlation between each individual stock with the market - something only the beta will tell us!

Very cool insights, thanks for sharing!

Best regards.
+1 Reply
Thank you for your sharing! From long term perspective, in the 1996- 2020 cycle, our point of view is that the imbalance is gonna correct soon. This correlation is showing that nasdaq is overrated, industrial and SPX500 is undervalued. The nasdaq is gonna crash and those traditional companies are gonna rise, for revisionism consideration. They perhaps will meet on 672 points, soon.
+1 Reply
Nathan_Black Victor.Y.F
@Victor.Y.F, Hello Victor! I'm glad you liked this analysis, my friend!

Thank you for the support. Yes, this is something to think about

Trade well.
Reply
what are you really saying here??? that markets go up over time.... wow that's quite an insite.... The nasdq is heavily weighted in just a few big tech stocks... that's one reason the it shoots up ... but if it took investors 15 years to recover from the last tech bubble.... then caution should be advised right now don't you think...
+1 Reply
Nathan_Black terrybit123
@terrybit123, Exactly! Thanks for the support, man!

Best regards.
Reply
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