Three Largest Stock Market Indexes in the US

The S&P 500

The Standard & Poor's 500 Index (known commonly as the S&P 500) is an index with
500 of the top companies in the U.S. Stocks are chosen for the index primarily by
capitalization but the constituent committee also considers other factors including
liquidity, public float, sector classification, financial viability, and trading history.

The S&P 500 Index represents approximately 80% of the total value of the U.S. stock
market. In general, the S&P 500 Index gives a good indication of movement in the
U.S. market as a whole.

The Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is one of the oldest, most well-known, and
most frequently used indexes in the world. It includes the stocks of 30 of the largest
and most influential companies in the United States.

The DJIA represents about a quarter of the value of the entire U.S. stock market. A
change in the Dow represents changes in investors' expectations of the earnings and
risks of the large companies included in the index. Because the general attitude
toward large-cap stocks often differs from the attitude toward small-cap stocks,
international stocks, or technology stocks, the Dow should not be used to represent
sentiment in other areas of the marketplace.

In general, the Dow is known for its listing of the U.S. markets best blue-chip
companies with regularly consistent dividends. So while not necessarily a
representation of the broad market, it can be a representation of the blue-chip,
dividend-value market.

The Nasdaq Composite Index

Most investors know that the Nasdaq is the exchange on which technology stocks are
traded. The Nasdaq Composite Index is a market-capitalization-weighted index of all
the stocks traded on the Nasdaq stock exchange. This index includes some
companies that are not based in the U.S.

Known for being heavily tech weighted, this index includes several subsectors across
the tech market including software, biotech, semiconductors, and more. Although
this index is known for its large portion of technology stocks, it does include some
securities from other industries as well.

Investors will also find securities from a variety of sectors as well, including financials,
industrials, insurance, and transportation stocks, among others. The Nasdaq
Composite includes large and small firms, but unlike the Dow and the S&P 500, it also
includes many speculative companies with small market capitalizations.
Consequently, its movement generally indicates the performance of the technology
industry as well as investors' attitudes toward more speculative stocks.

Understanding Stock Analysis

Stock analysis is a method for investors and traders to make buying and selling
decisions. By studying and evaluating past and current data, investors and traders
attempt to gain an edge in the markets by making informed decisions.

The notion of stock analysis relies on the assumption that available market
information can be used to determine the intrinsic value of a stock. In the primary
methods discussed below, investors use financial statements, stock price movement,
market indicators, or industry trends to make investment decisions.

Fundamental Analysis
Fundamental analysis concentrates on data from sources, including financial records,
economic reports, company assets, and market share. To conduct fundamental
analysis on a public company or sector, investors and analysts typically analyze the
metrics on a company’s financial statements – balance sheet, income statement,
cash flow statement, and footnotes.

These statements are released to the public in the form of a 10-Q or 10-K report
through the database system, EDGAR, which is administered by the U.S. Securities
and Exchange Commission (SEC). Also, the earnings report released by a company
during its quarterly earnings press release is analyzed by investors who look to
ascertain how much in revenue, expenses, and profits a company made.

Technical Analysis
The second method of stock analysis is technical analysis. Technical analysis focuses
on the study of past and present price action to predict the probability of future price
movements. Technical analysts analyze the financial market as a whole and are
primarily concerned with price and volume, as well as the demand and supply factors
that move the market.

Charts are a key tool for technical analysts as they show a graphical illustration of a
stock’s trend within a stated time period. For example, using a chart, a technical
analyst may mark certain areas as a support or resistance level. The support levels
are marked by previous lows below the current trading price, and the resistance
markers are placed at previous highs above the current market price of the stock. A
break below the support level would indicate a bearish trend to the stock analyst,
while a break above the resistance level would take on a bullish outlook.