The Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA) is the most important and influential stock market index in the world. S&P 500 is in the second position, followed by the Nasdaq 100.

The Importance of Dow Jones when Backtesting Trading Strategies

Dow Jones is so important that if an equity-trading strategy doesn't work with Dow Jones, it can't work with any other index. Therefore, Dow Jones provides the ultimate framework for historical backtesting.

Short History of Dow Jones

Dow Jones Industrial follows the price changes of 30 US companies, and that is why it is often called Dow(30). Originally, Dow Jones Industrial was introduced in 1896 by Charles Dow. Earlier, in 1884, Charles Dow introduced the Dow Transportation Average, which is the oldest stock market index in the United States. The Dow Jones Industrial was originally used to measure the stock prices of industrial companies holding the largest reserves of raw materials. Later, the composition was expanded to include companies from more industries. From 1928 until nowadays, the composition of Dow Jones Industrial has changed 45 times. In 2009 General Motors and Citibank gave their place to Cisco and Travelers.

The Dow Divisor

The DJIA price consists of 30 stocks prices which are divided by a particular divisor. The Dow Divisor measures and excludes the effects of stock splits, reverse splits and other structural changes.

The 30 companies listed on the Dow Jones Industrial are traded either on the New York Exchange (NYSE) or on the NASDAQ.

► The Dow Jones Indices Page

Which Companies Participate in The Dow Industrial

Here are the 30 companies that are included on the Dow 30 along with direct links to their official web-pages, symbols, date of original listing and current weighting on Dow Jones Industrial (last change 2011).

No.	Company Name	Symbol	Date Listed	Weighting %
1	International Business Machines Corp,	IBM	1979-	10,10%
2	Caterpillar Inc,	CAT	1991	6,38%
3	Chevron Corp,	CVX	2008-	5,95%
4	3M Co,	MMM	1976	5,66%
5	United Technologies Corp,	UTX	1939 (United Aircraft)	5,25%
6	Exxon Mobil Corp,	XOM	1928-(Standard Oil)	5,11%
7	McDonald's Corp,	MCD	1985	4,70%
8	Boeing Co,	BA	1987-	4,45%
9	Procter & Gamble Co,	PG	1932	3,99%
10	Coca-Cola Co,	KO	1987-1987	3,92%
11	Johnson & Johnson	JNJ	1997-	3,74%
12	The Travelers Companies, Inc,	TRV	2009	3,64%
13	Wal-Mart Stores Inc,	WMT	1997-	3,43%
14	E,I, DuPont de Nemours & Co,	DD	1935-	3,37%
15	Hewlett-Packard Co,	HPQ	1997-	3,00%
16	American Express Co,	AXP	1982	2,88%
17	JPMorgan Chase & Co,	JPM	1991- (J.P. Morgan & Co)	2,87%
18	Walt Disney Co,	DIS	1991	2,68%
19	Home Depot Inc,	HD	1999-	2,31%
20	Verizon Communications Inc,	VZ	2004-	2,24%
21	Merck & Co, Inc,	MRK	1979-	2,04%
22	Kraft Foods Inc,	KFT	2008	1,89%
23	AT&T Inc,	T	1999	1,76%
24	Microsoft Corp,	MSFT	1999-	1,68%
25	General Electric Co,	GE	1907-	1,32%
26	Intel Corp,	INTC	1999-	1,34%
27	Pfizer Inc,	PFE	2004-	1,16%
28	Cisco Systems, Inc	CSCO	2009-	1,15%
29	Alcoa Inc,	AA	1959	1,07%
30	Bank of America Corp,	BAC	2008-	0,91%

 

 

Dow Jones Industrial as a Predictive Indicator of Upcoming Events

Over the years, Dow Jones Industrial has proved a significant predictive indicator for global political and economical upcoming events.

Here is an example, the following chart presents the Dow Jones Industrial before and during World War II.

• 1937 Point-(1): Hitler takes absolute power in Germany and the Dow Jones Industrial predicts that a catastrophic war is about to begin (bearish market)
• 1942 Point (2): Hitler starting to lose the war of Russia (Operation Barbarossa) and the Dow Jones predicts that the war is coming to an end (strong bullish market)

Chart: Dow Jones Industrial during 1933-1946

 

■ The Dow Jones Industrial Average

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