What it Takes to Move the Dow
Monday, 23 Feb 2009
Dow [.DJIA ] components Bank of America [BAC], Citigroup [C ] and GM [GM] are posting nice gains today, but that’s having very little impact on the Dow.
As the index now contains five stocks under $10 (GM, C, BAC, AA, & GE), the Dow Industrials has come under greater scrutiny on whether it is still a good gauge of the overall market.
Since the Dow is a price-weighted index, for every dollar a stock gains or loses, the Dow will move about 8 points. This is true for each of the 30 Dow stocks, regardless of its price.
As a result, it takes significantly bigger percentage moves for a lower-priced stock to affect the overall index than it does for a higher-priced stock. For example, GM, which trades below $2, would have to move up nearly 57% if it were to move the Dow up 8 points. On the other hand, shares of IBM, which are priced near $90, would only have to move a little over 1% to move the overall index by the same 8 points.
Dow 30:
