WHen they say "The dow closed up or down X points " What do these points represent?

Question

Are the points up / down equal to the trading volume, or the price of the shares or for something else ?

Answer 1

points, in and of themselves, are completely arbitrary.

it's an indication, though, of how the market (represented by the Dow) is doing on that day.

Answer 2

The Dow Jones Average is composed of 30 large industrials - GM, Boeing, etc.  The number of points moved indicate how much the net market value moved up or down for that basket of companies.

The same thing applies to the S&P (Standard and Poors) 500.  It is a composite of the 500 largest companies and their movement as a group up or down.  The pros follow the S&P much more than the DJ.

Example:  S&P moves 130 points up.  What does this mean?  At the present, since the S&P is at 1298, this would mean the S&P went up in value approximately 1% that day.  

Answer 3

The Dow is a price weighted average, therefore changes in the $ prices of its underlying component stocks result in the changes in the average.  

The first criticism of this method is that on the Dow a $1 increase in a $100 stock has the same effect as a $1 decrease in a $10 stock.  Clearly, in percentage terms these should not be considered offsetting moves of equivalent significance.

The second criticism is that a $1 increase in a relatively small (low market cap) component company is equivalent to a $1 increase in a giant size company.

The third criticism is that with only 30 stocks (or fewer) companies in the Dow indices, they may act less like the market as a whole and they will be more affected when one company is substituted for another as an index component.

From all the above, professionals tend to prefer broadly based capitalization weighted indices, such as the S&P 500.