Beware the Dow Jones-Led Rally - Voice of the People

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Beware the Dow Jones-Led Rally

This morning, most of the leading stocks in the Dow Jones Industrial Average (DJIA) are trading higher. Traders must remember that the DJIA is a price cap weighted index unlike the S&P 500 Index and NASDAQ Composite which are market cap weighted indexes. When a price cap weighted index trades higher it will usually signal that the high priced stocks in that indexes are trading higher.

Today, IBM Corp ( IBM ) is the highest priced stock in the DJIA and carries the most weight. This tech giant is trading higher by $1.54 to $204.40 a share. Chevron Corp ( CVX ) is the second largest stock in the DJIA by price capitalization. This leading energy stock is trading higher by $1.01 to $101.79 a share.

Just between IBM, and CVX it will likely account for large percentage of the move in the DJIA. Some other large weightings in the DJIA are Caterpillar Inc ( CAT ), 3M Co ( MMM ) and Exxon Mobil Corp ( XOM ).

Traders should all beware when the DJIA leads the major stock indexes higher. Often, large investors will park money in the DJIA to collect a dividend if growth stocks look to be slowing down. Remember, it does not take many stocks in the DJIA to have the index trade into positive territory; it only takes a handful of the high priced stocks in the index to trade higher.

Nicholas Santiago


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CATERPILLAR INC ( CAT ): Free Stock Analysis Report
CHEVRON CORP ( CVX ): Free Stock Analysis Report
INTL BUS MACH ( IBM ): Free Stock Analysis Report
3M CO ( MMM ): Free Stock Analysis Report
EXXON MOBIL CRP ( XOM ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks
Referenced Symbols: CAT , CVX , IBM , MMM , XOM

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