There you go, folks! The infamous DOW 20,ooo! You couldn’t tune into any financial news network and not hear about this. Even my twitter feed was becoming unbearable. Can we now get back to normalcy? I find it hilarious how the main stream media can’t find anything else to discuss. I think I saw CNBC going out to talk with “Main Street” about this historical event. What a joke!
What does this mean for the retail investor? Probably nothing.
The DJIA, Dow Jones Industrial Average, was created by Charles Dow and Edward Jones, co-founders of the Wall Street Journal and Dow Jones & Company, in 1896 and it’s the second-oldest U.S. stock market index after the Dow Jones Transportation Average. When it was founded, the DJIA was comprised of 12 industrial and railroad companies. Today, the DJIA is now comprised of 30 large-cap, publicly-owned companies based in the United States. Companies are selected by editors of the Wall Street Journal and are typically only added if they have an excellent reputation, demonstrate sustained growth, and is of interest to a large number of investors. Two interesting facts about the DJI are its components have only changed 51 times since its inception in 1896 and General Electric has had the longest continuous presence on the index. General Electric was also part of the initial 12 companies that comprised the index.
The index is weighted by price instead of market cap. That is why Goldman Sachs Inc (GS) is the biggest component of the DJI at 8.04%, while Apple Inc (AAPL), one of the most valuable companies in the world, is only 4.13% of the index.
While CNBC likes to get everyone believing the DJIA is the index to follow, you can see that it represents a very small aspect of the general market. Something more important to watch, and probably has had more impact on your investments and 401k is the S&P 500 Index (SPX). The SPX is made up of 505 common stocks issued by 500 mid- and large-cap companies. The reason why there are more stocks than companies is because some companies, like Alphabet (GOOG, GOOGL), issue multiple classes of stock. It accounts for roughly 75-80% of the U.S. equities’ market value. In the past, the SPX has closely correlated with the Dow because Financials are a large component of both index. Financials comprise just under 15% of the SPX and 17.63% of the DJI.. The S&P 500 and the Nasdaq both his lifetime highs yesterday as well. As discussed yesterday I added to my short positions in both of these indexes. We are currently at a price extreme and I am looking to take advantage of the markets normalizing.
Short S&P 500
Short Nasdaq 100
Short Russell 2000
Covered 20yr Bond Options for a profit
Rolled the untested Boeing Puts up collecting another $1.08 in premium. I’ll be looking to roll this inverted strangle to the March Cycle soon.
Covered Mexican Peso (/6m) for a nice profit.
Today I’ll be looking to get some new trades on. My theta numbers are very low, but rightfully so due to the low volatility in the markets.
Major Economic Reports:
7:30 am CT – Weekly Jobless Claims
7:30 am CT – Chicago Fed National Activity Index
7:30 am CT – International Trade in Goods
8:45 am CT – PMI Services Flash
9:00 am CT – New Home Sales
9:00 am CT – Leading Economic Indicators
9:30 am CT – Natural Gas Inventories
10:00 am CT – Kansas City Fed Mfg. Index
12:00 pm CT – 7-Year Note Auction results