(AMEX). Both of these exchanges are located in New York City, but the NYSE is the largest. The NASDAQ (National Association of Securities Dealers and Automated Quotations) is an automated infor- mation system that provides stockbrokers and dealers with price quotes for over-the-counter stocks. There are other American exchanges, such as the Philadelphia Exchange and the Pacific Exchange.
Special note: A lot of emphasis is put on watching what the market does every day. It’s important to remember that the Dow Jones Industrial Average (DJIA) only comprises 30 com- panies. The NASDAQ Composite Indes and the S&P 500 are much more representational of what the market is doing because of their size. The S&P is made up of 400 industrial, 40 utility, 40 financial, and 20 transportation stocks, whereas the NASDAQ contains 5000 companies.
The DJIA, as well as the other Dow Jones averages, are price- weighted indices. Throughout every trading day, and at the end of each day, the averages are computed by adding the prices of the included stocks and dividing that number by a specified divisor. This divisor changes all the time, usually daily. No one stock will have a greater influence on the index than another.
The NASDAQ Composite and the S&P 500 are both value- weighted. The value of a given stock will affect the index in proportion to its value.
Common stocks can be segregated into many different cate- gories, and some stocks may fall into more than one category. While it may not always be easy to pigeonhole stocks, here are a few ways to categorize them.
BLUE CHIP STOCKS. These are stocks of companies that have the highest overall quality. Because of the blue chips’ high quality, many