Submitted by Van Beek on June 29, 2011 — 03:39

Following just a single US Market Index is not enough.

To know the overall direction of the US stock market and to invest your savings wisely, you want to follow a US market index. However, there are a few different US market indices. How do you know which US market index to follow?

Here we answer that question for you, taking into account what you want to do with the answer.

When you want to know the long-term direction of the US stock market, we suggest that you do not focus on just one US market index.

Long-term US Trend Direction

At Stock Trend Investing, we follow the four most important indices.

Two of these four are indices for the two major stock exchanges in the US:

• NYSE. New York Stock Exchange
• NASDAQ (Composite): Stock exchange with a focus on technology stocks

The other two indices are:

• Dow Jones Industrial Averages (DJIA): Often just called the Dow, this index consists of 30 large-cap stocks, some trading on the NASDAQ, some on the NYSE.
• S&P 500. A selection of 500 important US stocks.

In general, these indices move in sync. The long-term trend in all 4 indices points during the same period in the same direction.

But sometimes, one index shows a change in long-term direction a little earlier than the other indices. Or sometimes just one of the indices signals that a change of direction is taking place, but this signal is proven to be false afterwards.

Therefore, we recommend not basing a judgment on the direction of the long-term trend on just one index. Read here in our free Trend Signals guide how you can interpret the indications from the different indices. You learn how to come to a conclusion for the trend direction of the overall US market.

Trend Following the Stock Market Index

At Stock Trend Investing, we use the indices mentioned above to define the long-term trend direction for the US market. However, we do not just invest our savings in funds that follow these 4 indices.

We want to use the lowest cost index funds that allow us to diversify as well between large cap stocks and small cap stocks. If this is suitable for you depends upon amongst others how much you want to invest. These funds move in general in the same long-term direction as the overall US market. But using these funds offers some better diversification and potential rewards.

Read here more about how and which stocks index funds we select to invest our savings.

If you havent done so, I recommend that you sign up now here for our free newsletter on trend following stock market indices .