Dow Jones Blog

Nowadays it is not easy to find a trader who has never heard about the Dow Jones Index. This is the oldest and most popular stock index, which is considered a barometer of the U.S., and hence, of the world stock market.

In the US, the Dow Jones Index is one of the major indicators of market movements. The other two major market indexes are the NASDAQ and the S&P 500. Collectively, they are known as the Security Market Indicator Series (SMIS). It is a price weighted average index of 30 major companies. The Dow was founded in 1896 by Charles Dow, and at that time, represented the dollar average of twelve stocks. Since that time to present, it now has thirty components and is thus referred to as the Dow 30. In the old days, investors did not buy stocks because the stock market was not held in high regard. Instead, they mainly invested in bonds.

They did not have the technical indicators or different theories we have today, and they did not have any clear idea about how the market was moving, whether it was up, down or sideways. Because of this, they could not forecast trends. This would have made it harder to profit from stock picks. It is very important to have stock charts, and to be able to perform technical analysis on any stocks to determine where the price may reverse. Without this kind of information, you could only hope the stock would rise because you heard from the company owner that they had a good year. Thanks to the creation of the Dow Jones index, all that changed, and with it came a completely new way of forecasting.

Investors trading stocks on the Dow Jones index will be able to invest in a number of ETFs or exchange traded funds that are available through different asset management companies. Investing in these funds reduces your overall risk, because the fund is not dependent on the performance of one stock. This means that if one stock under performs, the other stocks in the fund will still allow you to make a profit, provided they are performing well.

Before you get involved in trading on the Dow Jones index, you should research the historical movement of the index. Markets move in a cyclical manner and have four phases. By using technical analysis, you can determine where the next trend will end and where the next one will start. Getting into the market that is bearish will not benefit you. Even if you have the best stocks, the market will pull it down. If you are looking to invest, try to buy just as the bulls are stepping in with the prices still low.

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For a stock market beginner, it is critical that he understands how the stock market works. He should also be aware of the major indices which drive the market. One of these major indices is the Dow Jones Industrial Average (DJIA). As a company, Dow Jones was formed by three people named Charles Henry Dow, Edward Davis and Charles Milford Bergstresser. They also started a newsletter called Customer’s Afternoon Letter which is widely known as ‘The Wall Street Journal’ in current times.

Dow Jones Industrial Average was officially launched in 1896 having only 12 companies listed in this index. These companies were American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American, Tennessee Coal & Iron, U.S. Leather (preferred) and U.S. Rubber. Out of these twelve companies only one (General Electric) still appears in the current list of DJIA.

When this index was launched, the way to calculate the index price was very simple. It used to consider the weighted stock prices of the listed companies. The market capitalization was not considered. Therefore, the index value was calculated by adding the stock prices of all 12 companies divided by 12. The current system of calculating the index is very refined and complicated. This method also considers the stock splits, mergers and market capitalization of the companies.

Currently, there are 30 companies in this index. These companies are 3M Co., Alcoa Inc., American Express Co., AT&T Inc., Bank of America Corp., Boeing Co., Caterpillar Inc., Chevron Corp., Citigroup Inc., Coca-Cola Co., E.I. DuPont de Nemours & Co., Exxon Mobil Corp., General Electric Co., General Motors Corp., Hewlett-Packard Co., Home Depot Inc., Intel Corp., International Business Machines Corp., Johnson & Johnson, JPMorgan Chase & Co., Kraft Foods Inc. , McDonald’s Corp., Merck & Co. Inc., Microsoft Corp., Pfizer Inc., Procter & Gamble Co., United Technologies Corp., Verizon Communications Inc., Wal-Mart Stores Inc. and Walt Disney Co.

The above mentioned companies are blue chip companies representing different sectors like banking, metal, technology, auto, food, retail etc. It is Dow Jones Industrial average that is known by the world over as the primary index and is tracked by the entire US nation as well as the world as an indicator of the world health economy. Currently there are other indices which are based on this index like Dow Jones financial index, Dow Jones Transportation index and Dow Jones real estate index.

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Trading on the Stock Market Today

There are many companies that are listed in the stock market today, with New York stock exchange being the world’s largest by market capitalization. It provides investors with the means to buy and sell stocks. Trading stocks takes place from Monday to Friday between the hours of 9.30am and 4.00pm ET.  Before you can invest in any stock picks, you need to get a broker that can execute all your orders. When they execute your orders, they will go through an ECN Electronic communications Network. This is a computerized system where stock and currencies are traded. Most brokers will be subscribed to a particular ECN that gives them direct access trading.

The stock market today allows investors the possibility to look at quotes on other exchanges through the ECNs, so it is important to make sure that the systems you are using allows you access to buy and sell on different ECNs. This will make it easier for you to find buyers when you are selling your stock, as you are not restricted to only quotes on one system. The speed at which your orders are executed is important; if there are delays on the ECN, it can cause losses, as quotes will arrive late. Make sure that you find out exactly what access you will have when you subscribe with your broker or ECN.

Stock picking requires that you carefully look at a company’s performance on the stock market today. This is will help you to eliminate poor or under performing stocks from your portfolio. To do this, you can look towards the fundamental analysis of the company. It will look at the important point of how the business is doing, mainly management, balance sheets, competition and the sector it is in. All these factors will show if the company is able to continue operations in the long term.

There are other types of analysis such as technical analysis and chart analysis. The former takes into consideration a stock past trading volumes and price movement, then look s for similarities in its current situation. Technical analysts look for areas where they may see reversals or a change in the direction of the stock or market. Predicting how the markets will move is important in the stock market today, as it will increase your chances of making a profit.  Reading and interpreting stock charts will help you stock pick the best shares for your portfolio.

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The Dow Jones Industrial Average (DJIA), also referred to as the Industrial Average, the Dow 30, or the Dow, is the most followed index of the United States stock market along with the NASDAQ Composite, the S&P 500 Index, and the Russell 2000 Index. It is a stock market index, and one of several indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. Although Charles Dow compiled the index to gauge the performance of the industrial sector within the economy, the index’s performance continues to be influenced by not only corporate and economic reports, but also by domestic and foreign political events such as war and terrorism, and disasters that could possibly lead to economic harm. It’s comprised of thirty corporations across several different industries. It is price weighted, meaning that a $2 change in a $100 per share stock will have a greater affect than a $2 change in a $20 per share stock. The Dow Jones Industrial Average, or Dow, measures can be used to gauge the health and direction of the stock market. Components of the Dow trade on both the NASDAQ OMX and the NYSE Euronext, two of the largest stock market companies. Derivatives of the Dow trade on the Chicago Board Options Exchange and through CME Group, the world’s largest futures exchange company, which owns 90% of the indexing business founded by Dow Jones, including the Industrial Average.

Below you will find a few different calculation that many financial and investment experts use to monitor the DJIA.

DJIA 200-Day Moving Average
This value is calculated by averaging all the closing values of the Dow Jones Industrial Average for the last 200 days. You can use this and the following measures to create stock market timing alerts.

DJIA P/E (Price/Earnings)
The latest DJIA value divided by the estimated current year earnings per share (EPS), with the index multiplier taken into account. Readings above 24 and below 8 are considered sell and buy signals respectively by many analysts.

DJIA Price/Book
The latest value of the DJIA divided by the book value for all DJIA stocks, adjusted by the multiplier. Readings above 2.5 may be a sell signal.

DJIA Yield
The sum of all dividends of all stocks in the DJIA divided by the latest value of the DJIA, adjusted by the multiplier. Readings below 3 and above 6 are considered sell and buy signals respectively.

Dow Jones Transportation Average (DJTA)
A index of 20 corporations in the transportation sector, including air, rail, and truck.

• Dow Jones Industrial Average Component Companies Increase Expected Annual Dividend Distribution by 8.40% From a Year Ago
• Dow Jones Industrial Average Component Companies Increase Expected Annual Dividend Distribution by 8.40% From a Year Ago
• Dow Jones Industrial Average Component Companies Increase Expected Annual Dividend Distribution for 2012 by 12.34% From a Year Ago
• Dow Jones Industrial Average Component Companies Increase Expected Annual Dividend Distribution for 2012 by 12.34% From a Year Ago
• Dow Jones Industrial Average Component Companies Increase Expected Annual Dividend Distribution for 2012 by 12.34% From a Year Ago

Many people who are new to stock investing wonder what the heck the Dow Jones Industrial Average is. Well, wonder no more. I’m hear to break this important piece of information down for you.

The Dow 30 or Dow is one of the more well-known “stock market indices” for investors. This “index” is a composite look at 30 very large & publicly traded stocks. Since these are the “big boys” many stock market players look at the Dow to get a feeling for how the market is doing on a particular day.

The components of the Dow is basically a who’s who of the financial world. I’ll give you the 30 companies here. It’s a good idea to check them out. Currently, the Dow 30 is comprised of 3M, Alcoa, American Express, AT & T, Bank of America, Boeing, Caterpillar, Chevron, Cisco, DuPont, ExxonMobil, General Electric, HP, Home Depot, Intel, IBM, Johnson & Johnson, JP Morgan Chase, Kraft Foods, McDonald’s, Merck, Microsoft, Pfizer, Procter & Gamble, Travelers, United Technologies Corporation, Verizon Communications, and Wal-Mart.

Spot any names you know? Like I said, these guys are the big players on Wall Street and that’s why just about every investor looks at whether the Dow is up or down on any given day.

The Dow Jones Average does change “who’s in” from time to time as well. For example, last year General Motors was dumped along with Citigroup. If you don’t perform up to a certain standard, you can’t be part of the club.

Would you like to own stocks for all these companies? You can. Through exchange traded funds you can invest in the DJIA. There’s also derivatives. Before you take the plunge, you’ll want to research the various trading options there are to see what’s best right now and what’s best for you. It fluctuates.

The Dow is good to know, but if you’re playing penny stocks or microcaps, it’s not going to help you out too much. In my travels, I found this item about having a penny stocks mindset.

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