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Strategies & Market Trends : MDA - Market Direction Analysis

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Nov 11 4:00 PM EST

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To: James F. Hopkins who wrote (2890)	12/26/1998 9:25:00 PM
From: HairBall	Read Replies (1) of 99985

James: Speaking of Index Funds...I think I have a simple translation of what you are saying regarding how the weighting causes Index investors/funds to chase the highest weighted stocks in an Index. Here goes...<g> A single long investment made at one time and allocated per the stock weighting of an Index will for the most part stay current with the weighting changes of that Index. (Assuming the monies are left long and the stocks in the Index remain the same.) However, where your point comes into to play is when new monies are invested. The front runners will always require a larger percentage of the funds, thus creating a supply demand scenario that continues to drive the highest weighted stocks in the Index. As Index funds are constantly investing monies, they are constantly driving the highest weighted stocks. However, if a true Bear raises its head, the reverse will happen. Something to keep in mind. Also, if a front runners falls out of favor and its price begins to drop it can cause an over reaction as Index Funds reallocate. Regards, LG

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