| | | | Yesterday, I started a mini-series on why you might feel dumber after watching CNBC.
My first gripe was with how mainstream financial news keeps quoting the Nasdaq Composite, even though the Nasdaq 100 is what really moves the market.
Today, let’s look at another common headline-grabber that can be even more misleading: the Dow Jones Industrial Average.
Here’s the thing. When your Bloombergs or CNBCs say “the Dow is up” or “the Dow is down,” you’d think they’re talking about all the stocks on the New York Stock Exchange, right?
Makes sense — after all, the Dow’s one of the oldest and most recognized indexes out there. But in reality, the Dow Jones Industrial Average, or just “the Dow,” only represents 30 stocks.
Now, those 30 stocks aren’t random.
They’re hand-picked from some of the biggest companies in the U.S., but they still make up just a fraction of the thousands of stocks that actually trade on the NYSE.
And here’s the kicker — people watching the Dow often think that when it’s up, everything’s up. But it’s just those 30 companies moving the index.
For anyone who’s less familiar, here’s some context on how the Dow works:
The Dow Jones Industrial Average is a “price-weighted” index, meaning the companies with higher stock prices have a bigger impact on the index than those with lower prices, even if their overall size or market cap is smaller.
So if one high-priced stock moves a lot, it can make the whole Dow look like it’s making a big move — even if that’s not the case for most of the index.
This is different from the S&P 500 or Nasdaq, which use “market-cap weighting” to represent stock movements in proportion to the company’s size.
Now, what really bothers me about this?
When you hear financial media say “the market is up,” they’re often just quoting the Dow. So you think, “Great! My stocks must be doing well.”
But in reality, only those 30 stocks might be up, and the rest of the market could be going the other way. It’s not an accurate snapshot.
This is why I don’t rely on the Dow for my trades.
To get a real sense of the market, I look at broader indexes like the S&P 500 (/ES for the futures, SPY for the ETF) or the Nasdaq 100 (/NQ for the futures, QQQ for the ETF) — not just 30 stocks that might or might not reflect what’s actually happening.
So next time you hear, “The Dow’s up 200 points,” remember it’s just one small piece of the puzzle.… then turn off the TV and tune into my Telegram channel for real insights.
Tomorrow I’ll explain another key reason why mainstream financial news doesn’t tell you the whole story — and it has everything to do with the way they report stock prices. Stay tuned for that!
— Geof Smith
P.S. Have you heard how savvy traders are using this “Four Day Play” to target weekly income? | | | | |
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