Nowadays it is not easy to find a trader who has never heard about the Dow Jones Index. This is the oldest and most popular stock index, which is considered a barometer of the U.S., and hence, of the world stock market.
The main reason for its popularity is simple: it is always liquid. It shows all kinds of individual investors’ trends in security prices since 1896. Falling and rising prices of Dow Jones index come across with the S&P 500. This two major US stock indices show 95% converge.
Dow Jones Index value is very easy to calculate. The Dow Jones creators offer us to perform a usual operation: add up the prices and to divide them afterwards.
Most other indexes are weighted by market capitalization,
which means that the change in the company price is multiplied by its size (ie capitalization). As a result, large companies have s greater influence on the index than those that are smaller. The Dow Jones index is only weighed by cost. A change in the price of a small company is as important here as of a huge company. Not everyone considers this an advantage; many analysts call it a drawback and say that the Dow Jones is less perfect than, for example, its main competitor S & P 500.
However, the Dow Jones enjoys great respect among private investors. And this is easy to understand: people like the fact that this index includes those companies which shares are usually bought for investors’ portfolios - usually very well-known large companies, which names are always on the rumor. Besides, a non-professional prefers to work with a small number of titles. Typically, private investors create their portfolios from the stocks of 20-25 companies, which is why they use the index which analyzes the activities of 30 companies, and that is the Dow Jones, rather than those composed of 500 or even 2000 kinds of securities.
The Dow Jones indices group is still one of the most popular stock market indicators in the U.S.. Securities of at least one of its thirty industrial companies are, as a rule, included in an average investor's portfolio, as well as a professional manager portfolio. And it’s not surprising - because these thirty stocks together comprise approximately 1/5 of the value of all U.S. companies’ shares (about 8 trillion dollars) and about a quarter of all shares listed on the New York Stock Exchange.
Mini-futures contracts on the Dow Jones stock index are traded on CBOT (Chicago), more precisely, on its electronic division - Exchange eCBOT. A contract is traded on the exchange under one symbol. YM is an electronic contract which is traded on the electronic exchange eCBOT from 03:15 to 01:00 MSK. Contracts are concluded for H (March), M (June), U (September), Z (December).
The underlying asset of E-mini DJIA is an American stock index DJIA. E-mini DJIA - one of the most liquid futures contracts, presented at the international stock exchanges. Its trade volume is up to several million contracts per day.
The contract is very liquid and is one of the most popular speculative instruments. A variety of technical analysis methods can be applied to it. Such a tool is said to be very technical.
Long-term players, of course, will apply fundamental analysis methods to predict the dynamics of the index. The behavior of the DJIA is closely linked with the general state of the U.S. economy. Besides, American stock indices are significantly correlated with each other, so you can trade DJIA, based on the behavior of other indices. In particular, the correlation of this index with the S&P500 is nearly 95%.
DJIA index is extremely technical, because of its popularity among speculators. This index is one of the main instruments for day trading, meaning, for multiple purchases and sales in a single day. We must take into account the fact that with the opening of trade on the NYSE stock exchange liquidity increases, and the index becomes even more mobile. During the first hour of trade the number of fluctuations as a rule increases and afterwards for some time the index is difficult to analyze with standard classical technical analysis tools. Still, the greatest volatility of this instrument is observed in the second half of the trading session, moreover, during the last hour of trade gaps may take place. The liquidity of YM increases dramatically when European players enter the market.
The dynamics of the DJIA is influenced by many factors. Among them are macro-economic indicators of U.S. and world economy, earnings reports of American companies, and authorities’ declarations. War, terrorism, natural disasters influence not only the currency market but the stock market as well.
From the perspective of macroeconomics the following indicators are important to us:
- State of the foreign exchange market;
- Gross domestic and gross national product;
- Inflation, unemployment and interest rates, exports and imports;
- The value of public spending and borrowing in the financial market.
