Currently 17 out of 30 Dow's components are trading below 2000 level. This is only slightly worse than in October 2007 when 15 components were trading at below 2000 level, with DJIA reaching its all-time-high at 14,164. So what's going on in here?
If one was to look at Dow's A-D ratio, we note that it never even exceeded 50%, yet the index was somehow able to exceed it's Jan 2000 high by some 21%.
But... all the gains were concentrated in XOM, CVX, MMM, JNJ, PG, UTX, C, BAC, MCD, BA, AA, and AXP; or financials, energy, materials, consumer goods and defense/capital goods. Financial stocks have since roiled; few others AA and BA are threatening to undercut their 2000 highs, while IBM and WMT have just recently managed to squeeze by their eight year old highs. The attached Dow component charts illustrate the severity of the damage that this index has undergone: a view that most will not see in deceptively presented charts. When viewed this way, there is no mistaking what is going on with DJIA.
Looking at another indicator, 200 Monthly MA, we also note that this indicator exceeded its trend line by Fibonacci ratio of 68% only twice. The first time was in August 1929 and the second time was in Sept 1999.
Given the weakness in Dow's breadth and its dollar inflated sector returns, a case can be made that Dow had reached its orthodox peak in 2000 when all of its components were making all-time-highs. The reason why the distinction between 2000 and 2007 top is important is that, a peak in 2000 would imply a retracement of the entire bull market LT cycle.
General Motors was added to DJIA in March, 1915; it now has retraced all of its market returns even beyond 1982, the beginning of this bull market.
Russian Roulette--Play it!
Edited by linrom1, 26 August 2008 - 10:41 PM.
