Some Dow Components Go Euphoric

Apr 25, 2007: 12:48 AM CST

I must admit I am impressed with the strength of the recent rally, especially in the market leading Dow Jones Index (which is still just comprised of 30 large-cap stocks). The Dow came within 10 points of touching the psychological 13,000 mark today, and it appears likely we will test this high soon.

What people are not seeing is euphoric gaps and strength under the radar in certain Dow Jones components, which is creating an almost ‘false’ index reading (in terms of few stocks making significant contributions to the index). This has always been a criticism of the Dow, and I wanted to point out a few of these “anomalies” of recent price action.

apx-apr-25.png ba-apr-25.png

cat-apr-25.png hon-apr-25.png

ibm-apr-25.png intc-apr-25.png

jnj-apr-25.png jpm-apr-25.png

ko-apr-25.png mcd-apr-25.png

mo-apr-25.png xom-apr-25.png

Although this is not a complete list of the Dow Components, it may seem like it because so many of them have experienced radical price movements (radical as compared to recent price action).

One has to wonder where the strength is coming from, and what forces are driving this market dramatically higher (even into record territory as an index).

I glance at least weekly and assess the technical picture of the Dow 30 components and many of the leading S&P 500 components to assess trend and the ‘health’ of the stock, as well as possible discretionary trade ideas based on patterns/indicators/momentum.

It is very rare that frequent gaps occur, and rare for sustained unidirectional price movement (the market pulses in swings – usually small swings).

Realize that there is either underlying, dramatic strength in the market… or panicking bears rushing as fast as possible to cover their short positions.

Some have said that the rally is in part because of tax refund checks and inflows to mutual funds after the April 15th tax date. Maybe. The facts of price movement are clear, but the reasons may not be.

View these charts and determine what conclusion you think for yourself as to what’s happening and what the most likely upcoming movement will be.

(Disclosure:  I hold no current positions in the mentioned stocks, but recently exited a swing trade on CAT on April 20th and have day-traded IBM April 24th and before).

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