The breathless media and the financial punditry love their numbers. More than that, they love to place their numbers in historical contexts. The Dow is doing this and it hasn’t done that since name your date. The Dow will set a new record if it does the following. You get the picture. The latest record keeping stat is the Dow’s ten-day positive streak.
- By now, you probably know the Dow Jones industrial average is at an all-time high and just logged it’s tenth up day in a row. This hasn’t happened since 1996, when the dot-com bubble was still a youngster.
The nail-biting question on the lips of those who speak of such things is: will the Dow break the streak today? I don’t know if it will, but I hope it does. The market needs a break from its tiring push uphill. I want the market to rest for a bit because it has a bunch more uphill climbing to go before it reaches the top for 2013. As well, the market needs to consolidate the gains it has amassed since November of 2012.
Everyone talks of the Dow’s record performance and now the S&P 500 is in the crosshairs of the breathless media as it approaches its new record high, but the fact is the market is comprised of other indices that contribute to the overall story. In context and together, the stories they tell are often as important, if not more important, than either of the two giants.
- Wilshire 5000
- S&P 400
- The VIX
True, the Dow is symbolic indicator of current market conditions and the S&P 500 is a more accurate gauge of reality, but the three indices above cover a breadth, sector, and key sentiment of the market that neither the Dow or the S&P 500 touch. The first of these is the Wilshire 5000. If one wants a gauge of how the overall market is performing, this is it. Currently, it too is at a record high.
- The Wilshire 5000 Total Market Index, or more simply the Wilshire 5000, is a market-capitalization-weighted index of the market value of all stocks actively traded in the United States. Currently, the index contains over 4,100 components. The index is intended to measure the performance of most publicly traded companies headquartered in the United States, with readily available price data, (Bulletin Board/penny stocks and stocks of extremely small companies are excluded). Hence, the index includes a majority of the common stocks and REITs traded primarily through New York Stock Exchange, NASDAQ, or the American Stock Exchange.
The second often neglected index is the S&P 400. If one wants a sign of how the mid-range of the market is performing, look to this index, an index that contains many well-known companies, such as Barnes & Noble, DreamWorks Animation SKG, J Crew, Saks, Panera Bread, Cheesecake Factory, and Chico’s.
- The S&P 400 MidCap Index, more commonly known as the S&P 400, is a stock market index from Standard & Poor’s. It has set a series of all-time highs since the Federal Reserve announced its third round of recent quantitative easing in mid-September 2012. At the weekly and monthly close of November 30, 2012, the index settled at the 1,000- point mark, and it has continued to rise in early 2013, setting all-time highs with a close of 1,111.72 and intraday peak of 1,112.41 before the State of the Union address on Lincoln’s birthday, February 12.
The latter point, about the 1,000 level, is important. Two years ago, I came across an analysis that suggested one should watch the number 1,000 for this index. The analyst said that if the S&P 400 could break and hold 1,000, the overall market would settle into a long bull rally. Well, the little mid-cap engine tried and tried, and in May of 2011, it broke through, but it could not hold. The rest of the story is above. The point is that when all the attention is lavished on the two top dogs in the market, this quiet index that measures the performance of the blue-collar companies in the market is ignored. One has a better sense of the overall market when one keeps this index in sight.
The VIX is certainly not ignored, generally, as it measures an important sentiment, fear, and it points to an important aspect of the market – volatility. It measures these market elements 30-days out. Right now, the VIX is sitting below twelve and it is showing no signs of freaking out, despite all the talk of a correction.
I use the above indices, along with the Dow and the S&P 500, to give me the best view of market performance. As well, writing about them gives me something else to focus on besides all the noise about the Dow and the S&P 500, the favored children of the breathless media and the financial punditry.
Trade in the day; Invest in your life …
