How Do You Interpret Daily Charts for the Dow Jones Industrial Average?


Quick Answer

The daily charts for the Dow Jones Industrial Average are interpreted as an indicator of the economic outlook, according to Investopedia. It is calculated from some of the most widely traded American companies. A one-point change in a given company’s stock price means that the stock can be purchased at an equivalent dollar value. Investors buy or sell stock when they expect the value to increase or decrease in the future, indicating a positive or negative economic outlook, respectively.

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Full Answer

As of 2015, the Dow Jones Industrial Average, colloquially called The Dow, is an average of the stock prices of 30 of the largest companies in the United States, as stated by Investopedia. The companies are taken from different economic sectors with the exception of transportation and utilities, each of which has its own trading index.

The average is calculated by dividing the price of each company’s stock by a divisor, as noted on About.com. The divisor accounts for corporate changes that can affect the stock value, such as mergers and stock splits. The Dow’s average is the sum of the 30 divided or weighted averages.

Each day’s average is given with respect to the previous day’s closing average, notes Investopedia. A negative movement in a stock price’s quote means that the stock can be purchased for less than it was on the previous day. The opposite is true for positive movements.

Large movements in The Dow commonly precede or follow larger economic news, indicates Time Money. Given its track record of over 100 years, The Dow is considered to be a reliable indicator of economic trends.

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