A LOOK AT DOW LEADERS AS IT TESTS ALL-TIME HIGH -- MOST DOW STOCKS AREN'T EVEN CLOSE TO NEW RECORDS -- GE TRIES TO PLAY CATCH-UP
DOW IS TESTING ITS ALL-TIME HIGH ... If you read newspapers or listen to radio or TV, you're no doubt aware that the Dow Industrials are within a hair of their January 2000 intra-day record at 11750. Chart 1 shows the Dow approaching that very important test. I thought this might be a good time to see where most the recent Dow leadership is coming from. For the record, I count six Dow stocks have already exceeded their 2000 highs -- BA, JNJ, MO, MMM, UTX, XOM. Three additional Dow stocks are actually hitting new record highs this week.
Chart 1
NEW DOW RECORDS... The next three charts show Dow stocks just now hitting new records. American Express is trading over 55 for the first time in its history (Chart 2). Citigroup is on the verge of doing the same after having just exceeded its 2000 high at 47.60 (Chart 3). Chart 4 shows Procter & Gamble hitting a new record after climbing above its 2000 record near 55. Several other Dow leaders are hitting new multi-year highs.
Chart 2
Chart 3
Chart 4
MORE DOW LEADERS ... Three of the stocks helping to push the Dow higher this week are shown below. Disney is trading at the highest level in five years (Chart 5). JP Morgan is doing the same (Chart 6). Chart 7 shows McDonalds trading at the highest level in six years. [Although not shown here, AT&T has just hit a four-year high]. All four of those Dow leaders are well below their 2000 peak. What strikes me about the current Dow test is how narrow the current leadership is. By my count, only nine Dow stocks are at record highs. Besides the three stocks shown above, none of the other Dow stocks are even close to new records. That means that the Dow is testing its record high reached in 2000 while less than half of its stocks are even close to that level. That would make a new record high a relatively narrow victory.
Chart 5
Chart 6
Chart 7
WATCHING GE ... One of the Dow stocks that bears close watching is General Electric. The monthly bars in Chart 8 show GE testing the top of its two-year trading range. The stock rose yesterday on strong volume, but is encountering some profit-taking today. GE needs a decisive close over 36 to reach a new four-year high. Its relative strength line (solid line) shows that GE has been a Dow laggard for the last six years.
Chart 8
DOW SHOWS ROTATION TOWARD LARGE-CAPS ... We've made the observation before that part of the new-found Dow strength is due to a recent rotation out of riskier small-cap stocks into more stable blue chips. Chart 9 shows that recent Dow strength has come at the expense of small caps. While the Dow has exceeded its May peak, the Russell 2000 Small Cap Index is still well below its old high. The relative strength ratio below the chart shows that the Dow started to outperform small caps during May. In fact, the Dow has been the market's strongest index since the May peak. I've also suggested before that rotation into blue chips (especially divident-paying ones) is usually associated with a more risk-averse market and is often associated with a late-stage bull market. One of our readers asked me how long the "late stage" phase can continue. I don't have a good answer for that. That's why I'm watching the Dow test along with everyone else.
Chart 9
