Comparing Market Averages

Another way to study the breadth of the market is to compare the performance of the stock averages themselves. Using the same day's trading as an example, the following data lists the relative performance of the major stock averages:

Dow Industrials

+12.20 (+.16%)

S&P 500

-.64 (-.07%)

Nasdaq Composite

-14.47 (-.92%)

Russell 2000

-3.80 (-.89%)

The first thing that is clear is that the Dow Industrials was the only market average to gain on the day. On all the TV news programs that night, investors were told that the market (represented by the Dow) was up for the day. Yet all the other measures were actually down. Notice also that the broader the average (the more stocks included) the worse it did. Compare the percentage changes. The 30 stock Dow gained .16%. The S&P 500 lost .07%. The Nasdaq Composite, which includes more than 5,000 stocks, was the day's worst performer and lost .92%. Almost as bad as the Nasdaq was the Russell 2000 (-.89%), which is a measure of 2000 small cap stocks. The message in this brief comparison is that even though the Dow gained on the day, the overall market lost ground as measured by the more broader based stock averages. We'll revisit the idea of comparing market averages again. But first, let's show the different ways market technicians can analyze the market's breadth numbers.

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