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inthemoneystock (< 20)

Rare Blood Bath For the S&P 500 Index And Nasdaq Composite



January 19, 2011 – Comments (1) | RELATED TICKERS: QQQ , SPY

The S&P 500 Index and the NASDAQ Composite are declining very sharply today. The catalyst for the decline today could be the weak financial stock earnings or perhaps just a very overbought stock market. Please realize the S&P 500 Index has increased higher by over 20.0 percent since Ben Bernanke announced his quantitative easing or as it is called, the QE-2 program. This is when the Federal Reserve buys U.S. Treasuries nearly everyday in order to create cash reserves which inflate commodity and food prices around the world. Great job Ben! Since that announcement of QE-2 in late August the markets have rallied higher on every dip or intra-day decline. Food riots have also broke out around the world recently. Countries such as China, India, Brazil, and other are facing major inflationary pressures in their economies. People in the United States are now paying over $3.00 for a gallon of unleaded gasoline. Great job Ben.

Oh, we should remember that the Dow Jones Industrial Average is not down very much today. This is the index that the public follows when they turn on the evening news. The Dow Jones Industrial Average(DJIA) is a price cap weighted index and not a market cap weighted index like the S&P 500 Index and the NASDAQ Composite. You see, IBM is trading higher today by $5.29 to $155.90 a share which is a new all time high. This stock is also the largest stock in the price cap weighted DJIA. Therefore, a single stock that is trading higher such as IBM can keep the entire Dow Jones Industrial Average from selling off sharply. Today the DJIA is trading lower by just 0.18 percent, meanwhile, the S&P 500 Index and the NASDAQ Composite are trading lower by more than 1.00 percent. 

Nicholas Santiago

1 Comments – Post Your Own

#1) On January 19, 2011 at 4:17 PM, davejh23 (< 20) wrote:

I wouldn't call -1% a bloodbath.  Financials and small caps are down much more...but I wouldn't call that a blood bath either.  Sure, it's a rare event if you look back only 3-4 months, but look back to the Summer (pre-QE2) months and it was a fairly common occurence.  Stocks do look set to pull back here, but it may be nothing more than the small pull back we saw in November.  Call it a "blood bath" when stocks fall 10% in a week and then keep falling.

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