The DOW is Distorted...

ezch

From Bianco Research....


Comment - The Dow Jones Industrial Average (DJIA) is aprice weighted index. The divisor for the DJIA is 7.964782. That meansthat every $1 a DJIA stock loses, the index loses 7.96 points,regardless of the company's market capitalization.

Dow Jones,the keeper of the DJIA, has an unwritten rule that any DJIA stock thatgets below $10 gets tossed out. As of last night’s close (January 20),The DJIA had the following stocks less than $10...

Citi (C) = $2.80

GM (GM) = $3.50

B of A (BAC) = $5.10

Alcoa (AA) = $8.35

If all four of these stocks went to zero on today's open, the DJIA would lose only 157.3 points.

The financials in the DJIA are...

Citi (C) = $2.80

B of A (BAC) = $5.10

Amex (AXP) = 15.60

JP Morgan (JPM) = $18.09

Ifevery financial stock in the DJIA went to zero on today's open, itwould only lose 331.25 points, less than it lost yesterday (332.13points).

If you want to add GE into the financial sector, a debatable proposition, then:

GE (GE) = $12.93

If the four financial stocks above and GE opened at zero today, the DJIA would only lose 434.24 points.

Thereason the DJIA is outperforming on the downside is the index committeeis not doing it job and replacing sub-$10 stocks and the financials areso beaten up that they cannot push the index much lower.

So what is driving the index? The highest priced stocks:

IBM (IBM) = $81.98

Exxon (XOM) = $76.29

Chevron (CHV) = $68.31

P&G (PG) = $57.34

McDonalds (MCD) = $57.07

J&J (JNJ) = $56.75

3M (MMM) = $53.92

Wal-Mart (WMT) = $50.56

Forinstance if all the sub-$10 stocks listed above, all the financialslisted above and GE opened at zero, the DJIA loses 528.63 points. Torepeat if C, BAC, GM, AA, JPM, AXP and GE all open at zero, the DJIAloses 528.63 points.

If IBM opens at zero, it loses 652.95points. So, the DJIA says that IBM has more influence on the index thanall the financials, autos, GE and Alcoa combined.

The DJIA isnot normal as the Index committee is not doing their job during thiscrisis, possibly because to the political fallout of kicking out a Citior GM. As a result, this index is now severely distorted as it has atiny weighing in financials and autos.

feng

Makes sense, similar to what HQ alluded to.  

marketguy

jasmin256

小花

Taurus168

Thanks for the info

lovingtony

314:(

legion

dzhxs3

ChuChu888

contr

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