THE DOPEY DJIA

I was reading something the other day where some strategist figured out that if we deleted C and BAC from the DJIA it would only cost about 50 points- well I stumbled onto something a bit more startling- Lose the bottom 13 stocks from the DJIA and we barely lose 1,200 points-

Check it out:

JPM 181

HD 149

DD 149

DIS 133

MSFT 129

INTC 102

PFE 98

AXP 96

GE 68

AA 50

BAC 32

GM 18

C 12

There it is, based on the .1255 current DJIA divisor the bottom 13 price weighted DJIA stocks account for about 1,215 DJIA points, or 13 of the 30 (43%) yielding a grand total of 17% of the index. How dopey is this.

BUY SELL OR HOLD

Markets are off their highs but are still acting well into the noon hour. The DJIA +106, NAZ +19 and SPX +9.

Strong sectors include gaming, biotechs, internets, tech and retail while oils, homies and defense lags.

NYSE internals have weakened but are still strong at +900 and the NAZ at +600.

OEX - 80 WINNERS- MCD GM LEH AVP LTD EXC S BAX EMC- LOSERS- BDK WMB COP DIS UTX TYC AES AA IP DELL EK SLB;

NDX - 75 WINNERS- ERIC CTXS ERTS JAVA WYNN ATVI XMSR EBAY CELG CHRW NVDA ADSK; LOSERS- XRAY LMAR LBTYA ISRG FLEX APOL NIHD DISCA;

VIX down 4%- still overbought;

GS seems to have hit its head at the 38.2% FIB number- 186 and is now only up about 40 cents after higher by $3+ earlier;

Crude up near all time highs as oil stocks lag- hmmm- funny how oil goes up just about anytime there is an oil related announcement-;

My guess is with tech and internals acting so well we probably get another ramp in the afternoon and we may get a +175 day on the DJIA.

Lots of talk about whether stocks or cheap. I remember way back to October 2002 when the SPX traded down to 790 and lots of folks were shorting all the indexes (it worked will for a few years). So at SPX 1460 - whats the deal?

According to today's WSJ, the DJIA is trading at a trailing PE of 15.74 and a trailing PE of 15. The SPX at 16.93 and a forward PE of 15.25.

The latest edition of Value Line gives the DJIA a forward PE of 14.9 and a reminder blurb that on October 9, 2002, the DJIA bottom, the forward PE was 15.2.

The S and P newsletter "Outlook" puts a 2007 earnings PE on the SPX at 15.62 and and 15.14 on the DJIA.

Bottom line, the markets are hardly expensive and when you compare equities to the 10 year

Bond at 4.33% its tough to make an argument that stocks are expensive. Of course this all assumes that earnings won't tank and I think that is a good bet as the indexes are well diversified among many industries and have lots of foreign sales/profits.

STORY OF DAY OSX NOT DJIA

The DJIA is closing at yet another six year high and the rest of the market, well who cares about the rest of the market. Maria is attributing the strength in the market to the new tax deal that is apparently done on capital hill. A letter to Maria, there are more than 500 stocks down on the day than up. Do you also want to attribute that to the new tax bill?

CNBC always focuses on the indexes that are doing well. How many times did they mention the trannies? Does anyone keep their eyes peeled on the transportation sector? sure.

Instead of focusing on the DJIA, they should be focusing on what is important today and that is the metals and the oils. How about telling us how the Semi's took it on chin as DELL got smoked.

It looks like the OSX has made a new all time high today and the metals indexes, HUI and XAU have made at least new ten year highs today. THAT IS THE STORY OF THE DAY AND NOT THE DJIA. The DJIA is a dopey price weighted index where a stock selling at 60 has three times the impact as a stock selling at 20. Whose idea was it to use a price weighted index for the DJIA? How dopey.

STRANGE RECAP

Markets seem a bit disjointed as the NAZ/NDX closed up over 1% while the DJIA/SPX/RUT/MID's all closed near the flat line with the DJIA ending lower after being up and down over 100 points on the day. Value stocks were the laggards again as both small and large cap value stocks closed in the red.

Strong sectors included Chinese stocks (FXI) which was up almost 10% and has doubled since the August lows, internets, semis, tech, airlines and trannies while metals, oil service, defense, homies, retail and utils lagged.

Key stocks - 29 up and 11 down led by NVDA INTC RIMM GOOG and KLAC while UA ISRG POT MA MER BG CAT BAM C all closed red;

Market internals were flat on NYSE/NAZ while NDX was a hair green and OEX flat; IBD 100 very strong with 2/3's of the stocks closing in the green.

Biggest winners included SNP LFC CHL TKC ANSS PDA GOOG CI JPM DELL MSFT HPQ KO YHOO EBAY INFY FLEX SNDK and MRVL;

A very strange day as the markets opened way up, went way down and closed near unchanged on the DJIA/SPX and up 29 on the NAZ. Even more interesting was the action in the VIX which was red as the DJIA was down 100 points. Not sure why but definitely odd.

Two day RSI numbers all over the board as the different sectors trade in their own separate way:

SPX 30

DJIA 12

NDX 75

COMPQ 67

LARGE VALUE 6

SMALL VALUE 6

RUT 27

MID 10

Final note, for now its all about tech and hopefully they eventually pull the rest of the market up.

CLOSING HIGHER

Markets closed near the high and above the flat line after opening almost 100 points lower on the DJIA. The DJIA closed +18, NAZ +1 and SPX +.22 points. The RUT was the big winner on the day up .37%.

Strongest sectors included homies, airlines, defense, internets, retail and brokers while semis, biotechs, drugs and tech lagged.

NYSE internals +270;

NAZ internals +175;

OEX - 50 WINNERS- ATI AA GM LTD MCD AVP UTX GS KO GOOG; LOSERS- AXP DELL TWX ORCL NSC S INTC BMY AMGN MS XRX BNI;

NDX- 53 WINNERS- YHOO BEAS XMSR SNDK AKAM VMED CHRW FAST RIMM JOYG; LOSERS- ISRG MICC NVDA RYAAY DELL LVLT ESRX ORCL S INTC APOL;

VIX FLAT;

Key stocks mainly higher led by GS BSC LM NYX RIMM GOOG BIDU AMZN AAPL TIF SHLD JWN LVS WYNN BLUD SGP BAC C KO XOM;

SPX DJIA NDX all hanging in above their 50 day SMA's after sinking below earlier this morning. Looks like they want to go higher in front of the big FED meeting on Tuesday and probably after also. Two day RSI numbers on major indexes near the high end of 90 on the SPX/DJIA/NDX and 72 on the lagging RUT. Resistance remains above at the 1490/1505 levels but I suspect we may exceed those numbers sometime next week. So bullish for now and looking to buy any bad news on a Fed disappointment and the RUT may be the place as it has lagged and may be ready to play some catch up. I stand by my "stocks are cheap" declaration as the SPX/DJIA trades near the 14/15 PE level with the 10 year bond rate at 4.46%.

CLOSING DIP

Another day and the big caps outperform again- well not exactly, the RUT and the MID were both up about .2% while the DJIA/SPX/OEX complex were all down on the day. When does that mean reversion thing take hold?

Anyhow, the DJIA closed down 45, NAZ +5 and SPX -2.

Strongest sectors, metals, oils, biotechs, trannies, small cap growth, software, homies, defense and yikes- large cap growth. Weakest were drugs, utilities, reits, financials, semis and tech.

Market internals closed near the flat line on the NYSE and NAZ with a net red number of 350.

The NDX internals were also about flat while the OEX showed 35 up and 65 down; the SPX, about 2 up for every 3 down.

Biggest winners included MHS VMC BTU ATI CMVT AAPL FCX VLO JOYG WFMI and SLB. Biggest losers included HPQ MDT F AVP INTC GM SYMC JNPR DISH GENZ and SUNW.

Volatility indexes a bit lower with the VXO back under 10 and the VIX slightly over at 10.19.

The futures trade worked out pretty well as there were a few bursts near the 12,780 level on the DJIA YM Futures.

I suspect that it won't be long before we start talking about new highs on the DJIA index again for the upteenth time. Maybe even tomorrow as we are only about 65 points away.

One of the really good trades has been to buy the DJIA Futures on a dip and wait for another new high. Its worked like every time in the past several months and I suspect this dip will be no different.

TECHNICALS-DJIA

As one can plainly see from the chart, the DJIA has done very little over the past month even though it hit a new intra day high yesterday morning. The SPX has traded in a similar pattern while the NDX/NAZ have both been in mini downtrends over the past month. Also, check the action in the SMH semi group which hit its high of $36 back in mid October and has since slid about 6.5% to a close of $33.65, not something one hears much about from the bubblites on CNBC.

I have done a pretty good job day trading lately and my favorite trading vehicle has been the YM DJIA Futures contract. The YM trades in one point DJIA intervals with each point equivalent to $5 for each contract. The CBOT requires about $1,950 of margin for each YM contract so with 10 contracts one controls the equivalent of $617,000 for $19,500 of cash equity.

My methodology is based on my read of market direction/chop via the individual index charts, market internals and leading/lagging sectors. Entry and exit points are based on pivots, support and resistance on the charts of SPX IWM NDX YM ES NQ and DJIA.

CLOSING FACTS

An ugly afternoon for the major market indexes as the financials continue to stink up the markets - note the GS note that US banks may need an additional $65 Billion in capital- so the BKX/XLF both down 3% + as I type.

The DJIA -105, NAZ -15 and SPX -9;

And where are all those TV gurus who pleaded with us to buy big caps for the last eight years- note the MID up on the year while the SPX/DJIA both down close to 8%.

Strong sectors today in the momo areas- oils, shipping, ags, steel and metals while banks, brokers, reits, real estate, homies and insurance brought up the rear.

NYSE- 620 net losers;

NAZ- 850 net losers;

NDX-20 GREEN;

OEX-25 GREEN;

IBD-70 GREEN;

VIX- up 1% with the major indexes way down;

TRIN- 1.13 - almost 2X downs to ups with very light volume;

CRUDE $134;

GOLD- $887;

EURO- 1.55;

RSI (2) levels pretty telling:

SPX 37

DJIA 27

NAZ 57

NDX 61

RUT 61

MID 80

XLE 89

XLF 27

MOO 91

OIH 89

So as long as the financials continue to act poorly a nice strategy would be to short the pull ups in DJIA/SPX or even go long QQQQ/IWM /MDY and short SPX/DIA.

LEVELING

Markets open lower on the heels of downgrades in the financial sector by JPM. the DJIA is -50, NAZ -15 and SPX -9.

Strongest sectors- metals, China, defense, semis, emerging markets and internets;

Weakest sectors- airlines, brokers, financials, banks, real estate and small caps;

NYSE - 1,420 net red;

NAZ- 1,050 net red;

NDX 15 WINNERS;

OEX -20 WINNERS;

IBD 100- 20 WINNERS;

Key stocks in the green -BIDU BG RIMM GOOG MO CELG CME POT MSFT AAPL;

Key stocks red- MS MER TIF GS C VMW BAC GE MA UA DECK GRMN;

VIX - near 24.5 and higher by 3.5%- still 3% under the 10 day SMA;

RSI (2) on various major indexes:

SPX 29

DJIA 32

NAZ 18

NDX 20

RUT 14

MID 27

Technically, the levels that stand out as support are 1,450 on the SPX and 13,165 on the DJIA (61.8 FIB), the 200 SMA on the DJIA also right here at 13,255. SPX 1,450 was a big level before the break on Nov 19, so I am watching it again as an important stopping point.

NDX -2.025 is the number yet again, the 50% retracement.

THE CLOSE

The NAZ and tech still in the green a bit before the closing bell while BAC KFT DIS PFE GM T VZ WMT AA all DJIA components and all red.

Interesting to also see the RSI (2) diversion between tech and the DJIA-

NAZ 71

NDX 77

SPX 41

DJIA 31

MSH 79

SMH 86

A future trade for this fish long QLD and long DXD- as the DJIA just looks like an awful index stuffed with lousy stocks.

Tech and energy probably the place for an intermediate term trade.

THE BARRON'S

Barron's with some pretty good stuff this weekend- starting with Andrew Barry and his predictions for 2009:

Total return for the DJIA for 2009---- +40% according to Barry and a number at 12,001;

Battered emerging market equity to perform the best in 2009-------BRAZIL;

SPX sector to do the best----- TECH;

Biggest financial surprise - GOLD to close over $1,200;

Newspapers to make a big comeback;

Pandit to be gone at C;

ERTS to be taken out;

MS to be a big winner;

Worst performing DJIA stock-- HD;

Commodities to outperform;

GM files for bankruptcy;

Hillary doesn't survive the year as Secy of State;

Oil the top performing commodity;

The 30 year T Bond ends the year above 4%;

Some pretty surprising predictions from Barry but who would have guessed SPX 875 and crude under $40 for this year-

I don't see DJIA 12,000 , Hillary being out as SS but the other stuff seems logical- well newspapers- nah;

Mark Roberts at a short sellers research shop with some pretty good number for 2008- shorts for 2009:

HRC SYK PSYS;

Longs- BRS PHH ASML;

DOGS of the DJIA - not doing so great of late as from the beginning of 2007, the kennel included C PFE MO GM VZ DD T HD JPM GE with yields ranging from 3.1% to 7.34% collectively were off about 42% as of last week- the 2009 canines include BAC GE PFE AA DD T VZ MRK JPM and KFT- all yielding between 4.32 and 9.31%.

STRETCHING

Markets bounced around most of the day with the DJIA closing down 107, NAZ 6 and SPX 5.

Sector strength was found in metals, steel, oil service and shipping while gaming, financials, banks and internets lagged.

Market intenals were red but not horrible and the action in the NDX was actually ok as it closed flat but lots of stocks like AAPL RIMM GOOG etc closed at/near their highs.

So next week could bring a nice over sold bounce as we are again stretched far away from the SMA 50 on the SPX- about 7%- similar to the stretches back in January and March- the prior lows.

In addition check the action in the DXD- the 2X inverse DJIA- volume spiking to prior highs -(the market lows) and check the RSI (2) - a bit over bought in reverse. And going long on the volume spikes in double inverse ETF's seems to be a pretty good strategy in the past- and just imagine if we could get crude back down a few bucks- which is probably not a horrible bet.

Cramer also may be setting up for a good contra tell as he wants to sell at DJIA 12K and buy em back at DJIA 10K- not so easy - especially if we don't get there- and check the VIDEO on the TG site- comic relief from the real King of Comedy.

CLOSING PRETTY

A nice day in the markets as the DJIA closed +417, NAZ +86 and 47 on the SPX. The RUT the biggest winner +4.6%.

Strongest sectors- china, banks, brokers, real estate, reits, emerging markets, homies, oils, small caps and trannies while biotechs, drugs, semis, defense and airlines were up but lagged.

Key stocks- all finished green with biggest moves in ICE MTW MS POT CME C NYX BIDU RIMM and BAC- laggards- LVS MO MCD VMW KO PG;

NYSE- 5/1 winners to losers;

NAZ- 3/1 winners to losers;

NDX -95 GREEN;

OEX- 95 GREEN;

IBD 100- 93 GREEN;

VIX- down almost 10% to 26.58;

TRIN- .54;

90% of the 2B shares traded was to the green and that is a bullish signal;

Technically, DJIA 12k and SPX 1,300, initial resistance was child's play for the bulls with the next level of 1,315 also in the rear view mirror for now. Next area- 1,340- 23.6 FIB level and also the 50 SMA as of today.

So after this huge day- markets for the year are as follows:

SPX -10%

DJIA -8.3%

NAZ -15%

MID -10%

RUT -12%

RSI (2) levels:

SPX 74

DJIA 74

NAZ 74

RUT 72

MID 66

What a difference a day makes- and how bout the great stuff from Liz Ann.

THE CLOSE

There it was - another pre market gap up on good news from Ben and Hank and sold it was. Did I mention resistance above and it was Friday?

Anyhow, the DJIA closed up about 75 after being up double that in the pre markets, NDX -13 after the pre market futures were up 20+ and the SPX closed up 12 after futures were higher by more than 20.

Strong sectors- homies, airlines, banks, real estate, trannies, retail and brokers while metals, semis and tech lagged.

Key stocks- 24 out of 40 green led by MER MTW BAC C POT UA MS MO ISRG and GRMN while RIMM TIF NVDA CELG ICE AAPL BG and KLAC tanked.

NYSE 1150 net green;

NAZ 320 net green;

NDX 50 WINNERS;

OEX 70 WINNERS;

IBD 100- 55 WINNERS;

VIX -22.8 and down 5% - trading about 10% below the 10 day SMA in sell territory;

Up Volume about 4X Down Volume;

Techinals- NDX rejected at the 50 day SMA after GS came out with less that stellar news regarding the tech sector- SPX closed at 1,481, under the 1,490 planned area of resistance- and the 200 day SMA at 1,484. And the DJIA right at the 50% retracement area of 13,370- how bout dat.

Probably higher prices next week after some short term weakness- and congrats to Larry Kudlow who saw the DJIA futs up 150 this AM and predicted a +350 day on the index. Eh no- Markets are over bought and with VIX trading at relatively low levels it wasn't a high percentage trade. RSI (2) way over bought as follows:

SPX 91

OEX 90

NAZ 72

NDX 61

DJIA 91

RUT 73

MID 92

CLOSING LIMP

Markets again close at/near the lows as the banks and financials continue to stink up the board. DJIA -270, NAZ -60 and SPX -34.





Other bad sectors include homies, real estate, oils, defense, airlines and small cap value.





The bright side, we may be back to some support at 47 on the QQQQ, 200 day SMA at 2507 on the NAZ DOG- markets have turned around a few times there- also the 38% retracement level of about 1440 on the SPX.





Market internals about as bad as they get with 2400 net red on the NYSE and 1750 net red on the NAZ.





Volume at a bit over 1.1B - about 95% to the downside- hmmmm.





Every DJIA stock lower.





VIX up about 17% and a hair above the 10 day SMA and 30%+ above the 50 day SMA.





WINNERS- RYAAY XMSR CELG SIRI ADBE MRVL SNDK CI AEP ASEI SNDA;





LOSERS- ACH CF SNP DRYS CRNT RIO TBSI NILE CMED NVDA FSTR LEH ATI MS AA GS HIG JOYG NVDA MXIM GRMN;





Hard to believe that we are still about 525 points off the DJIA low from 12 days ago- just shows how far we have come so fast - for all those that thought they might have missed the bottom. Not sure we get back to the lows - too easy - but I suspect fed rate cut coming soon. They may not be able to take much more pain.



FWIW:

Two day RSI's:

SPX 12

DJIA 13

RUT 11

NDX 15

MIDDAY VIEW

Another boring day on the street as the DJIA is +29, NAZ -2 and SPX +2.

Drugs, biotechs, gaming, silvers, metals, internets, banks and large cap value are the strongest areas while tech, semis, real estate, trannies, homies and airlines are bringing up the rear.

Market internals on the NYSE/NAZ/OEX remain flat while the OEX has 50/50 up to down while the tech heavy NDX has about 40/60 up to down. The SPX internals are also flattish

The 2 day RSI on both the SPX/DJIA sitting near the 75 area while the volatility indexes are about 6 or 7 % below their respective 10 day SMA's.

I don't like to go against the simple trading rules but I am thinking again that if earnings and guidance are "decent" next week we may see a ramp higher in equity prices and new highs on the DJIA. Please note that we are about 200 points away from the old high on the DJIA and 12 away from the 6 year high on the SPX hit back in February.

CLOSING RALLY

The DJIA/SPX big cap group closed near their highs with the DJIA +85, SPX +11 and NAZ +28. The biggest surprise of the day, the small caps which lagged all day and closed flat.

In addition, market internals made their highs when Big Ben let the cat out of the bag and worsened throughout the day. A closing green 1,100 on the NYSE and + 470 on the NAZ after having 1,700/1,000 more winners than losers earlier. A big difference.

The internals on the NDX/OEX/SPX were very strong all day and hardly varied from the green
95/85/400 all day. So the major indexes appear to be much stronger than the average stock.

Strongest sectors included semis, brokers, trannies, internets, semis, tech, emerging markets, software, biotech and metals; laggards were the dollar, reits, oils and small caps.

The 2 day RSI on the DJIA/SPX has hit the overbought areas at 90/87 respectively and may be giving the "take some off the table" signal.

Volatility indexes, like the market internals, hit their lows early and steadily drifted higher. The VXO hit 9.03, about 4 basis points off the near all time low of 8.99 before closing about 10% higher near the 10 level. The same pattern in the VIX but not quite as extreme as it also closed at near the high of the day.

I suspect a pullback from here on the Big Caps as 190 points on the DJIA and 22 on the SPX is going to be a pretty good reason for traders to take some money off the table. The traders that bought Friday and Monday anyway.

PRE OPEN

Futures are trading up on the heels of the CSCO guidance and a new high on the DJIA (post bubble high on SPX) may be made at/near the open.

On the Wires:

BSC with positive comments on MOT; Piper sees solid upside for AKAM; ICE beats by 7 cents but light on revenues; GILD added to "conviction buy list" at GS; TASR says study finds "prolonged exposure from a TASER electronic control device has no abnormal respiratory effects on human subjects"; and its Wednesday, oil crop report at 10:30 est.

Gapping up BHP CSCO AVNX TIVO CELL NAPS CSC BRCM MOT and TSL.

Gapping down- WIRE VFC FRX WHR CAKE RL TYC MEDI RTP ICE and EOP.

A heads up on the recent range of the SPX/DJIA- Over the last four days, the SPX has had a daily range of 8.75, 4.85, 5.5 and 6.8 while the DJIA has been even more narrow with ranges of 67, 46, 51 and 47 points. The typical range on the SPX has been about 10 while on the DJIA it has been near 90 so we are set up for a range expansion; Question of when not if and today would not surprise me. And another interesting article on the short term 2 day RSI and Liz finally getting some press.

CLOSING TRADE

Markets traded in a tight range for most of the day with the "tech heavy" NAZ acting best and the Big Cap DJIA taking a bit of a rest. The DJIA closed -20, NAZ +7.5 and SPX +2.5.

Strongest sectors were homies, semis, tech, oil service, brokers, internets, financials and midcaps; on the darkside were metals, gaming, silver stocks, integrated oil and retail.

Market internals were fair with +530 on the NYSE and +255 on the NAZ.

The NDX was strong with about 63 winners; OEX had about 55 green and SPX about 3/2 to the green.

The DJIA looks overbought and is probably ready for a little pullback as the VXD (vol index of the DJIA) is also in an area where it has recently found a bottom. As I mentioned earlier, perhaps a little jig on Monday as the late buyers prop it up and then the beginning of a decent sell off as traders ring the register.

CLOSING COMMENTS

Markets closed the day at/near the highs as the day trading dip buyers had numerous opportunities to buy and sell near the close.

Strongest sectors were oils, emerging markets, metals, silver stocks, banks, tech, small caps, biotech, trannies and brokers; leading lower were gaming, airlines and software.

Market internals were the tell that a rally would probably appear as the NYSE closed with 1,350 more winners than losers and the NAZ closed with a net 550 to the green.

Major indexes all had many more winners than losers with the OEX showing 67 up, the NDX with 60 up and the SPX with a very bullish 350 green.

Leading higher were FHN UNM WFT L MOT ITW BMY CHRW CKFR FLEX PTEN ADSK WFMI BDK BHI and S. Lower were MMM UPS F FDX MRK JNPR ATVI LRCX ADBE and MRVL.



The DJIA was a laggard as MMM and MRK were major drags. Without them, the DJIA would have been up 70 points. Also not participating were the Semis; some days they act great and other days they do nothing. GS and AAPL also were lower today and are beginning to unnerve some traders as they should be leading market rallies. ICE MER MS IAI were all higher and CME recovered about 25 points of morning losses.

In the for what its worth category, the small caps have now take the lead in the best performer for 2007 as they are now +1.3% compared to +.7% for the SPX and +.5% for the DJIA. Oh, and has anyone on CNBC mentioned that IWM is only about 60 cents from an all time high. Advice to Jimmy Cramer, just tell folks to buy IWM every nite and ignore the individual stocks. Makes for lousy TV but good returns.

My market commentary remains the same, dips are for buying as that strategy has worked since March 2003.

I can give anyone many many reasons why the markets should go lower but the old adage of trade what you see continues to say higher prices as there continues to be demand for equities.

We are again only about 90 points from all time highs on the DJIA and it wouldn't surprise me if some time next week go knocking on the door again.