Can someone tell me what the DJ index and other market indicators really mean?

[thereds]

How is that number derived?

 

[jonmullen]

DJ I believe is an avg of all the stocks some how. Just like the S&P 500 is just of the top 500 or something like that.

 

[SViscusi]

Originally posted by: thereds
How is that number derived?

Ask and you shall recieve

What is the Dow Jones index?


The Dow Jones Industrial Average was founded by Charles Dow in the late 19th century. Dow began his average with 11 stocks, mostly railroads, in 1884. The purpose was to try to make sense of all of the daily ups and downs of stocks that were at all different price levels. People weren?t much into stocks back then, mainly putting their money into bonds, which were backed by tangible assets such as buildings and machinery. But Dow?s index, as time went on, gave people a sense of knowledge and confidence in the stock market.


In 1896, Dow introduced the 12-stock industrial average (which the Wall Street Journal began to publish on a regular basis). His original 11-stock average, which consisted mostly of railroads, now consisted of 20 railroad stocks. The railroad stocks average was renamed the Transportation Average in 1970. The Utility Average was put together in 1929, 27 years after Dow?s death in 1902.

In 1916, the 12-stock industrial average was expanded to 20 stocks, and was expanded again to its current level of 30 stocks in 1928. The average, which was originally calculated using simple math (adding the prices and dividing by the number of stocks) was, beginning in 1928, calculated using a special divisor rather than the

number of stocks. This made the average more accurate by taking into consideration split shares, or when a company was removed from the average and another was put in.


Today, the 30 Dow Jones Industrial Average stocks are all top companies in their industries, and represent nearly one-fifth of the $8 trillion market value of all U.S. Stocks, and nearly one-quarter of the New York Stock Exchange value. The average is calculated second-by-second throughout the U.S. trading day, giving investors an idea of how the market is trading at any point in time.

From here.

 

[burnedout]

Originally posted by: thereds
How is that number derived?

The Dow Jones Industrial Average is a "weighted" index.

Methodology straight from the horses mouth:

Dow Jones and Company, Inc.

 

[thereds]

Cool.

 

[Maetryx]

The other indeces, like the S&P 500 (Standard and Poor's) is a much broader index, encompassing 500 stock prices. That's a lot more than the DJIA (Dow Jones Industrial Average) which only tracks 30.

The other one to watch is the NASDAQ, which is considered a measurement of tech stocks, although it consists of more than that.