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THE
DOW REPORT It has been a few months since we looked at the “Dogs of the Dow.” For those who may not be familiar with the “Dogs of the Dow” they are a “portfolio” of such that is based on the Top Ten dividend yielding stocks within the Dow 30 as of January 1st of each year. For 2006 the Dogs of the Dow portfolio includes:
Thus far this year the Dogs are 4.98% verses 5.3% on the Industrials. Below we have a daily chart of the Dow Jones Industrial Average in the upper window and the Dow Jones Top Ten Index, which is an index that approximates the Dogs of the Dow, in the lower window. These charts are as of the close on June 1, 2006. As we all know, the Industrials have recently bettered their previous Secondary high points reconfirming the Secondary trend as being positive. However, the Dow Jones Top Ten Index has not. This non-confirmation is represented by the blue lines on the charts below.
I want to point out in the next chart below that the last time such non-confirmation occurred was at the 2000 top. My personal view is that as long as this non-confirmation exists, it is a warning that should not be taken lightly. Aside from the fact that this is an index of the top ten dividend yielding stocks, it also represents one third of the Industrials. No matter how you look at this, it is not a positive development.
Next I want to update you on my intermediate-term Advance/Decline line. This A/D line is tied to the rhythm of the intermediate term cycles within the market. For the benefit of those who may not have seen this indicator before, I want to point out that it peaked in June 2003 with the second intermediate-term advance up out of the 4-year cycle low. Since then, it has continued to diverge, as is represented by the blue trend line, with the most recent advance being the weakest based on this indicator. In addition, also note that with the latest intermediate-term advance, this indicator peaked out in early January. This created another divergence within the longer-term divergence, which is represented by the green trend line. For those who may have seen this chart before, it has not improved in the least.
When we combine the facts that we still have the Primary Trend according to Dow theory negative, the Top Ten as well as other important non-confirmations on the table, weakening breadth as the indicator above suggests, the implications of Dow theory phasing and the cyclical implications that are setting up, this remains an unhealthy sign and is indicative of a major change coming. In the short-term, things have turned positive once again. All the while the “Liquidity Pump” is in high gear trying to hold back the tide. The Liquidity Pump will not hold back the forces of nature forever and we are going to enter a window this summer in which this could all begin to change. Remember, I agreed with Jim that we would first see the gain and then the pain in 2006. So far, we have been right on the gain. What I’m trying to say here is that the time for the pain is drawing near. The June issue of Cycles News & Views will be out later this weekend. In this issue I discuss the specifics of the 4-year cycle and what the statistical implications currently are as well as specific timing expectations. I also cover gold, the dollar and bonds. A subscription also includes web-based updates 3 times a week. For more information, please visit www.cyclesman.com. Tim W. Wood
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