If you recall some of the worry and panic by *some* advisers while others were saying the year would be ending way up. This is the problem with advisers. I prefer real statistics and pre-set rules. However, some statistics can be deceiving. That's the point of this post today.
The DJIA (Dow Jones Industrial Average) is the most commonly referenced indicator for the overall stock market health. It represents 30 of the largest companies (and not-so-industrial like it was 100 years ago). There are technology stocks and health and entertainment. This is an intentional reflection of the "industry" of America.
Being a representative carries with it some trust that it is a true reflection of the broad market. It's not. "The Dow" (as it's called sometimes) is an odd multiplier of those 30 stocks to help keep the mix stay balanced as stocks are moved in and out of the top-30 list. The net total isn't the sum of all the stocks. It's a weighted multiplication. That makes it consistent mathematically, but also a bit strange for newcomers.
As the most quoted number, I would've expected it to be the right number. Here is the sum of 6,000 most traded stocks in the USA:
This is a 1 year chart.
Compare that with the trivial drop in the DJIA. That means the enthusiasm for the top 30 stocks is much higher than the overall market. The truth is the broad market. This is what investors need to be aware of. (Traders love ups and downs.)
The chart here is for DIA (same as DJIA but numbers are 100 to 1). Here the year started around 18,000. As of Dec 30th, it was near 17,500. By comparison, the overall market is that thin blue line that trails downward on the bottom right. 6,000 stocks can't be "wrong". The prices are the recent fair price. They can't be wrong. They reflect the belief of broad investment market opinion.
What does this mean to me? I'd be looking for the market to find it's bottom. The top chart shows a support line (horizontal line) that the market might test again. If it break below that line, I expect more of a fall to happen. Things don't fall forever either. I just want to see that a bottom is reached and stabilized before buying shares.The selection of a good stock is essential, but it's always done with the broad market in mind. Don't buy stocks in a dropping "bear" market.
