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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (2901)	12/27/1998 5:59:00 PM
From: James F. Hopkins	Read Replies (2) \| Respond to of 99985

Hi David; I find market value weighted and cap weighted use by different people talking about the same thing. They are interchangeable terms. I say cap weighted.. meaning you take the market cap of a stock / the total market cap of all stocks in the index and get a weight, or it's percentage of the total market cap. Then you allocate your Dollars invested among the stocks by the percentage given, just how many shares you wind up with depends on what you $invest * the %of its cap / price of the stock. Big caps get more weight and move the index more any time they change price. Above is for the S&P, the Dow works different..it's price weighted and a $1 move in it's smallest company moves it's index just as much as a $1 move in it's largest. Price moves are reflected equal by all the DOW stocks..its about $4.12 right now for each of any of the DOW stocks who gains or losses a $1 ---------------------- Dollar weighted is another..you put equal dollars in all the stocks no matter the cap or price, and the index reflects the over all percentage gain/loss of any stock in it equally.. one has as much clout on the index as any other, not based on price moves, but percentage moves. The new Sterrt internut index is this way, and it's OK if you have picked stocks and like them one as much as the other, and don't care to much about the liquid factor if you need to get out. -------------------- Last is like the SOXX..it's sort of flat, you own about .43 shares of every stock in it. Since April 30 the model I'm using to track it is off .0057 % based on the .43 shares..up a total of 14.21%, BUT using a cap weighted one in the same time frame with the same 16 stocks the cap weighted one is up 43.98 % This info is for any one who happens to compare the SOXX with the S&P, you are not comparing apples to apples, overlaying the soxx with an S&P500 chart is a No No, they are not made up the same way. Like wise comparing the DOW with the S&P can at times be very miss leading, it's in the nature of the indexes themselves. ------------------- I also run the DOW index two ways..at this moment the cap model is tracking the price model close, the cap model & S&P will out perform if money is flowing towards the real big caps, the regular model will play catch up or even advance over the S&P if money shifts to the smaller caps. ------------------ A dollar weighted index of the S&P that responded to the percentage moves of the stocks in it would tell us more about the over all health or growth of all the companies, much better than the cap weighted one we all see. But I don't suggest investing that way. However it would show growth or the lack of it in a broader way..and being every one is programmed to buy growth and pundits talk growth we should have an index that reflects it better than the ones we have. Lets face it Wall Street don't want people to know what's really going on, & what every it is they think we are supposed to know they will glady tell us what that is. Jim