|  JUN 1991

Take A Look At The Dow by Daniel E. Downing

Take A Look At The Dow by Daniel E. Downing In the past, one of the first requirements of being a technical analyst was a promise of sorts to ignore the price action of the Dow Jones Industrial Average. A technician had to focus on the action of more broadly based stock averages such as the New York Composite Index, the Standard & Poor's 500, or the Value Line Index to get an understanding of what the market was doing. The thinking behind this was that the price action of these more broadly based indices gave a truer picture of what was going on in the stock market and better represented the best predictive mechanism for price forecasting. Strength in the S&P 500 meant that the entire equity market was strong, regardless of the action of the Dow Jones Industrials (DJI). That thinking must change. Now, the real world is best represented by the Dow Jones Industrials, and this is why the time has come to focus on the action of the DJI more than any other stock index or average. INSTITUTIONAL VS. INDIVIDUAL Over the past 20 years, the institutional investor has become the dominant player in the stock market and the individual investor has become the less dominant player. With the dominance of the institutional investor has come (in the last five years) a priority of mirroring and not beating the stock averages through the advent of indexing and index funds. A survey shows that 27% of all institutional equity funds are indexed. The net result? A small number of large-capitalization stocks are concentrated in the hands of institutional owners. Of the 30 stocks in the DJI, 28 most likely fall into this category

by Daniel E. Downing