Discussion in 'Trading' started by Daal, Jul 20, 2007.
The media is calling a bull market based on the Dow and S&P. Both of which are weighted to reflect the best results.
Hey Boss! How so?
The top 10 components of the SPX make up 20% of the entire index. The top 25 components of the SPX make up an even greater percentage of course.
Now if one of the top 25 components warns or has a bad earnings call then it may bring down any other components of the SPX that are related. On the flipside, if they have a good earnings call then it will bring up the other components.
For example, if Exxon comes out with a bad earnings call then it will most likely effect other players like ConocoPhilips. Exxon makes up 3.76%, Conoco makes up 1.03%, Chevron makes up 1.45%, etc. Energy makes up 10.8% of the index. Therefore, when Exxon reports 10.8% of the index is on the line.
In the end, the fate of the market depends upon less then 25 stocks...
Mike, I know the answer, LOL. SPX is cap weighted. The Dow however is PRICE weighted. Hence the two indicies are formulated differently.
Bed Bath and Beyond shouldn't be as important to index valuations as GE or IBM.
Separate names with a comma.