Stock Market Fact
Last 10 years Red line is the 1 year average
S&P 500 Index - month to month over 10 years
Notice the key cross point for stock market collapses
The 1 year average is the average price over the past 12 months.
This is calculated by taking the end of the month price for the past 12 months, then adding them up and dividing by 12.
The stock market can not begin a long decline unless it goes below its 1 year average first and it can not begin a long upward climb until it goes above its 1 year average first.
It is a common sense approach to understanding the stock market trend when timing the market. The market is considered normal when it is above its average price over the past 12 months because this means the market as a whole is no longer dropping.
This is the actual chart of the S&P 500 Index. It is known as the leading indicator for the overall market by professional Investment Managers because
it has 500 of the biggest and most established companies in every industry.
Indexes like the Dow Jones and Nasdaq follow the direction of the S&P 500 because the Dow Jones Index only has 30 companies and the Nasdaq Index has many small companies that causes it to become to sporadic.
It is useless to buy stocks or mutual funds when the stock market is under its average price because it could be heading to a 1 year low.