New High in DOW is Meaningless
DOW dividend index
There had been dancing in the streets, well, at the very least on the floor of the Long Island Stock Exchange last week when the Dow Economic Index closed at a record high. The many cheerleaders on CNBC-TV were euphoric howling, “I told you so”. But what did it actually let us know. The DJIA or DJX as it is also called is made of thirty stocks that represent about 25 percent of the value of the NYSE. That’s impressive and one of the most important reasons this index is studied by so many across the world. Caterpillar Tractor Company was $16 in the year 2k and closed on October two, 2006 at $65.
The worst was Intel that dropped from $72 to $20. Many slid fifty percent. So what really happened? Only nine of the thirty stocks made new highs that day – only 30 percent. Nobody on CNBC troubled to mention twenty-one stocks, seventy pc, failed to take part. New highs were entered by Amex +3 points, Boeing +12, Caterpillar +49, Johnson & Johnson +30, Minnesota Mining & Producing ( MMM ) + thirty three, Altria +55, Proctor & Bet + four, United Technology + 39 and Exxon + twenty-five.
There isn’t any point in listing all the losers. 3 lost more than fifty percent from the 2k high. How can this make a new suggestive high when the index shows seventy percent of the speculators lost money? Way back when before you used to be a gleam in Daddy’s eye ( 1896 ) when the first average made by Mr. DJX and Mr. Jones first appeared in the WSJ all you probably did was add up the cost of all the stocks and divide to get the Index.
Each stock in 1990 was added and multiplied by two. Today each stock is added and multiplied by eight to get the DJX number. If you add the closing costs of the DJIA stocks on October three it came to 1465.91. With the present multiplier of eight makes a closing DOW Index of 11,727.