If you read this column regularly, you know I hate the Dow.
It’s an old, tired, irrelevant indicator that is a poor reflection on the actual markets. With just 30 members in the club, all it takes is a bad day from one of them to trip up the whole index.
Since it is followed so closely we are forced to watch it and comment on it endlessly while fairly reliable indicators like the S&P 500, the Nasdaq or the never mentioned AMEX barely get mentioned in the mainstream press.
When America was a manufacturing superpower and the Dow Jones Industrial Average was comprised of the nation’s industrial leaders, then it meant something! But the Dow has declined in meaning as the global mix has shifted manufacturing to other countries and we are left with what can only be described as a sentimental indicator that is given far too much weight – much like an aging ballplayer that is called upon to pinch hit late in a game, you have so many good memories that you get your hopes up only to see him weakly ground to the shortstop or strike out.
The Dow has been striking out for years and it is dragging the team down with it. Because of the weighting given the Dow, the other indexes cower in fear as the markets are held down by walking dead components like GM, MSFT, PG, DD, UTX, WMT, HON, T, VZ, C, MRK, PFE, KO, JNJ, MMM, AA, DIS, AXP… well, pretty much all of them!
The best performers of the DOW are IBM, MO, XOM (one of the worst performing oil companies), BA, CAT, HD and AIG and none of them were a home run last year.
Get the full list here, it’s good to be aware of it: http://www.djindexes.com/mdsidx/index.cfm?event=showComponentWeights&rptsymbol=DJI&sitemapid=20
So keep this in mind when the Dow disappoints you. It is a team of guys who would be picked last in most growth virtual portfolios, whose best years are mainly behind them. I hope for a market move in the next few years that leaves the Dow behind, decoupling the index in the minds of the press – this is an index that needs to be benched!
That being said, the Dow is resting on a super critical support line of 10,700 with 5 components reporting today. We narrowly averted disaster in the Dow on Jan 2nd with a surprising run up but yesterday left us with a lower close (10,668) than the Jan 2nd low of 10,684. Below this line lies 10,500 below which there is a black pit you don’t even want to think about…
Take a look at this chart and the original 12 Dow components of 1895: http://www.djindexes.com/mdsidx/index.cfm?event=showavgDecades&decade=1895
Only GE remains to this day, if you are young, this should give you pause before you commit your retirement account to our current line-up!
