Term: S&P500 INDEX

An index of the 500 largest companies trading on Wall Street, weighted for their market capitalisation. The S&P is more representative than the Dow Jones which is a simple average of the 30 largest companies on Wall Street. We also suggest that the direction of the S&P is a good indication of whether world markets are generally in a bull or a bear trend. If a long-dated moving average (like 200 days or more) of the S&P is falling then world markets are probably in a bear trend and vice versa. Obviously, you do not want to own shares when world markets are in a bear trend, because during a bear trend 80% of shares fall – and vice versa. Consider the following long-term chart of the S&P500 index with a 300-day moving average superimposed:

sp500

S&P500 Index (I-SP500)

Here you can see the bull and bear markets over the past 22 years identified. The turning points are shown with red and green arrows. The slope of the 300-day moving average indicates fairly accurately whether world markets are in a bull or bear trend.

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