• DJIA gives back all of Monday's gains and hits its lowest since October 14.
  • Chip stocks lift the Nasdaq and S&P 500 after three losing sessions in a row.
  • Midterm votes are counted ahead of Wednesday, with October payrolls due Friday.

Gains in chip stocks have lifted the Nasdaq Composite and S&P 500 on Tuesday after three losing sessions, while the Dow Jones Industrial Average is moving the other way. It has given back all of Monday's gain and is trading near 51,700, just below Friday's close. Its session low near 51,500 is its lowest since October 14.

Apple (AAPL) is weighing on the Dow after Monday's results disappointed analysts, including a gross margin forecast and fiscal fourth-quarter iPad sales that missed estimates. After the results, HSBC cut its forecast for Apple's share price by $6, to $360.

Advanced Micro Devices (AMD) is up ahead of its third-quarter results, and Broadcom (AVGO), Micron (MU) and Nvidia (NVDA) are higher too. It's the reverse of Monday, when the Nasdaq Composite fell more than 1% and the Dow rose. The NASDAQ 100 is still about 10% below its recent high, against less than 6% for the Dow from its August peak.

On the calendar

US midterm votes are counted after Tuesday's polls close. Wednesday is the first session where the results for control of the House and Senate from January can be traded. Prediction markets put Democrats near 75% to take the Senate, and investors and analysts said stocks aren't yet priced for a Democratic sweep of both chambers.

The Automatic Data Processing (ADP) employment count for October is due at 13:15 GMT on Wednesday, forecast at 69K after 90K, and the Institute for Supply Management (ISM) services index follows at 15:00 GMT, forecast at 54.8. October Nonfarm Payrolls (NFP) are due at 13:30 GMT on Friday, forecast at 65K after 29K, and both counts feed the Fed's December rate decision.

On the charts

The drop from the late-October high near 52,900 has taken back about half of the climb that started just above 50,500 on October 1. The index is below its 50-day Exponential Moving Average (EMA) near 52,100 for a third session, and the 200-day EMA is near 50,750. Daily momentum has cooled out of overbought, where it was for most of the second half of October.

Dow Jones daily chart

Dow Jones FAQs

The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.

Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.

Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.

There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.