Dow Jones Industrial Average edges up as money leaves tech stocks

DJIA gives back about two-thirds of its climb but holds above Friday's close.
Sherwin-Williams and Home Depot lead, and Crude Oil drops over 7% on Iran.
Midterms are Tuesday and October payrolls come Friday.

Joshua Gibson FXStreet

Investors sold tech after Oracle (ORCL) filed to raise $20 billion for artificial intelligence (AI) and bought the industrial and retail names that fill the Dow Jones Industrial Average. The index rose from just above 51,800 to just short of 52,500 and has given back about two-thirds of that climb, trading just above 52,000. The whole session has traded inside Friday's range.

Sherwin-Williams (SHW) rose 5.6% and Home Depot (HD) 3.3% on the day construction spending fell the most in a month since April 2020, mostly on housing. Oracle, Marvell (MRVL) and Lumentum (LITE) fell 6%-18% on funding and deal news, and none of the three is a Dow member. The Dow's own tech names fell less, with Nvidia (NVDA) down about 0.5% and Apple (AAPL) down 2% before its results.

Crude Oil fell more than 7% after President Trump said he's in no rush to restart the war with Iran. The Institute for Supply Management (ISM) factory index came in at 55.5 against a 54.6 forecast, and its prices index fell to 75.2. Honeywell (HON), 3M (MMM) and Boeing (BA), three of the Dow's manufacturers, each rose more than 2% with orders growing and fuel costs down.

On the calendar

September job openings are due at 15:00 GMT on Tuesday and the ISM services index at 15:00 GMT on Wednesday, forecast at 54.8 after 54.9. October nonfarm payrolls come out at 13:30 GMT on Friday, forecast at 65K after 29K, with unemployment expected to hold at 4.2%. Each bears on demand for the industrial and retail names behind the Dow's gain.

On the charts

The index has given back more than a third of its climb from the October 1 low just above 50,500 to the late-October peak near 52,900. It's trading just below its 50-day Exponential Moving Average (EMA) near 52,100 and well above its 200-day near 50,750. Daily momentum has dropped out of overbought after two weeks there.

Dow Jones 5-minute chart

Dow Jones daily chart

Dow Jones FAQs

What is the Dow Jones?

The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.

What factors impact the Dow Jones Industrial Average?

Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.

What is Dow Theory?

Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.

How can I trade the DJIA?

There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.

Author

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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