The Dow Support Has Broken, What About The S&P 500?

On Friday the Dow Jones Industrial Average (^DJI) broke its daily support of 7,451, plunging further down to 7,106 on Monday (shown in the first chart below). You may ask if this is a representation of the whole stock market breaking support. This is a good question, the answer is in how the averages of our two major indexes, the Dow and S&P 500 (^GSPC) , are derived. The Dow is calculated by taking the sum of the 30 stocks and divided that by divisor that prevents things such as stock splits from affecting average. The S&P 500 is calculated using the float based weighted average market capitalization of the 500 stocks that make up the index. That said, the 500 stocks that comprise the S&P 500 are most likely a better judge of the stock market as a whole. Since the S&P is a more accurate measure of the market, it is used more frequently by professionals to do things such as judge the performance of most major equity funds.

The next few days will be very important as the S&P 500 is resting right on its daily support level of around 741 (shown in the second chart below). If this support breaks, we may may not see a substantial support level until potentially 606 which would be around a -22% decline from Monday’s levels. However, if this daily support holds we may get a temporary bounce to at least the 800 resistance level.

Disclaimer: None.

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