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Beware Of The Dow Jones Industrial Average Lead Rally

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April 16, 2012 – Comments (0) | RELATED TICKERS: CAT , CVX , IBM

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, International Business Machines Corp (NYSE: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 (NYSE: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 (NYSE:CAT), 3M Co (NYSE:MMM), and Exxon Mobil Corp (NYSE: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 SantiagoInTheMoneyStocks.ccom

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