Learning to penetrate the smoke screen that the Dow-Jones Industrial Average has become is, in my opinion, vital to the success of any investor or trader.

If you don't know what is going on inside the "Dow", you don't know anything worth knowing.

The complex formula used to compute this monstrosity, called price-weighting, goes far beyond simply adding up the individual prices and dividing the whole thing by thirty. It also employs a divisor designed to compensate for stock splits.

The effect of all this not only gives the higher priced issues more weight in the average but accounts for the incredibly high valuation of the average itself.

Confused? Good! You're supposed to be. You see, dividing a number by a value less than one actually turns it into a multiplier!

The current divisor, as of this writing, is approximately .2 which is the same thing as multiplying by 5!

That means a one point move in a stock is good for a five point move in the average.

It also allows a few higher priced issues to give the illusion that the average stock is moving up when, in fact, the other issues are moving down.