Monday morning, most of the leading stocks in the Dow Jones Industrial Average (DJIA) are trading higher. Traders must remember that the DJIA is a price cap weighted index unlike the S&P 500 Index and NASDAQ Composite which are market cap weighted indexes. When a price cap weighted index trades higher it will usually signal that the high priced stocks in that indexes are trading higher.
Today, IBM Corp (NYSE: IBM) is the highest priced stock in the DJIA and carries the most weight. This tech giant is trading higher by $1.54 to $204.40 a share. Chevron Corp (NYSE: CVX) is the second largest stock in the DJIA by price capitalization. This leading energy stock is trading higher by $1.01 to $101.79 a share.
Just between IBM, and CVX it will likely account for large percentage of the move in the DJIA. Some other large weightings in the DJIA are Caterpillar Inc (NYSE: CAT), 3M Co (NYSE: MMM) and Exxon Mobil Corp (NYSE: XOM).
Traders should all beware when the DJIA leads the major stock indexes higher. Often, large investors will park money in the DJIA to collect a dividend if growth stocks look to be slowing down. Remember, it does not take many stocks in the DJIA to have the index trade into positive territory; it only takes a handful of the high priced stocks in the index to trade higher.
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