How did Dow Jones Industrial Average (DJIA) Fare in 2019?

** Intended for New Graduates **

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Jason is interviewing for Senior Research Analyst with a major brokerage house.

Interviewer
Question # 1: How would you interpret the 2019 DJIA trend?

Jason: Visually, it's a linear trend. It has been trending at 45 degree. 

Interviewer
Question # 2: When you say 'Visually,' do you mean there could be a better technical trend?

Jason: Yes, a polynomial trend would show better fit with significantly higher r-squared. Yet, I would stick to the linear trend as it would be easier to explain to the general clientele.  

Interviewer
Question # 3: What is the missing piece between these two graphs? Or, is there one?

Jason: Volatility. While the Weekly one depicts the market volatility, the Monthly one irons it out. 

Interviewer
Question # 4: Is there another way to depict the market volatility? If so, would that make the volatility case any stronger?

Jason: The Daily closing graph will show higher volatility but it won't make a better case than the Weekly one. As you know, a level of smoothing -- which the Weekly one incorporates -- is a better way to present volatility to the general clientele. 

Interviewer
Question # 5: What market event is common in these two graphs?

Jason: The precipitous market drop in May, bringing Dow under 25,000. Of course, by early July, Dow climbed to a new high, crossing the 27,000 mark. 

Interviewer
Question # 6: Do you think the May correction was driven by basic fundamentals of the market?

Jason: No. It was more news driven like trade, tariffs, etc. than pure market fundamentals. 

Interviewer
Question # 7: How did you come to the conclusion that it was news-driven rather than fundamentals-driven?

Jason: Had it been fundamentals driven, the correction would have lasted much longer. Instead, you can see the immediate V-shaped recovery leading to new market highs.

Interviewer
Question # 8: What is the difference between the 2-period and 3-period moving averages in the above graphs?

Jason: The 3-period in the Weekly graph points to 3-week moving average, whereas the 2-period in the Monthly refers to 2-month moving average.

Interviewer
Question # 9: Would you advise your clients to continue to pour in money in Dow in Q1-2020? 

Jason: Selectively. I will continue to recommend the Dow components with high dividend payouts. I will also urge them to keep some cash handy, just in case a correction occurs, leading to good buying opportunities.

-Sid Som, MBA, MIM
President, Homequant, Inc.
Homequant@Gmail.com

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