Stock Markets

Approximately 50% of a stock's movement is attributed to Market direction.

Although the term 'Market' is vague, in many people's minds it refers to the Dow Jones Industrial Average (DJIA) or perhaps the S&P 500; there are also other groupings of stocks which are closely watched. For instance, NASDAQ reflects a total of about 5700 companies, and the Russell 2000 index contains 2000 individual smaller-cap stocks. Individual components of each of these groups have something in common - size, trading location, etc., and hence tend to generally move in the same direction.

Over the past 15 years, the DJIA has moved up from about 1100 to about 10000-over an  900% gain!  This has been largely driven by earnings growth.  So if you want to find out how fast, how high, or how low a market will go, analyze the estimated earnings growth and P/Es and compare those to historical benchmarks.

Historical earnings and/or estimated future earnings can be determined for any market, sector, industry, or stock.  For the S&P 500, for example, merely add the earnings for all 500 companies together then divide by the total number of outstanding shares.  To the right is a breakdown of the S&P 500 market and its earnings for the past few years.

Key Stock Market indicators:

• Low P/E to Growth Rate
• High/Low Indicator - new highs vs. new lows
• Volume trends
• Advance/Decline Line - are more issues going up than down?
• Money flow
• Future projection of earnings

Past earnings — S&P 500:

1993       $19.09
1994       $21.86
1995       $30.65
1996       $33.96
1997       $38.73
1998  est.$45.12
1999  est.$46.90
Future est. 5-Year Growth rate: 7.20%

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