Charts and Commentary

By: Marty Chenard | Wed, Oct 11, 2006
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Did the Dow Jones Industrials REALLY make a new high? (Charts for stocks mentioned today, and the year-to-date price gains for each DOW stock is below.)

You have to wonder if some kind of virus wiped out "common sense" in the markets.

Take the DOW for instance. It is making new highs. In fact, as of noon yesterday, it had gone up 10.60% year-to-date. One anomaly on the index, if adjusted to a more realistic value, would have had the DOW at 11616 yesterday ... below its all time high.

Consider this:

* 16.7% of the DOW stocks are in the red for the year.

* 20% of the DOW stocks have risen between 2% and 5%.

* The best stock rise for the year on the DOW was by a company who's rise was almost double the rise of the second best stock on the DOW.

* This stock went up 64.52% this year, and last year everyone was wondering if it would go bankrupt. This stock that went up 64.52% is a money losing company ... and it has been the most significant driver in the DOW reaching new highs! This same company's stock price has consistently made "lower tops and lower bottoms" since 2002 ... in other words, it is in a long term down trend.

* The stock's high on May 31st, 2002 was $68.17. At Noon yesterday, it was $31.87 ... a drop of 53.2% from May 2002, yet it is the best contributing stock to the DOW's rise this year by nearly a factor of 2 compared to the DOW's next best stock. By the way, the DOW is up 14.3% since its May 31st. 2002 monthly high.

* Oh ... one more tidbit. This company's second quarter Revenues were $53,669,000,000. and it still lost $3.37 billion dollars for the quarter with a -$5.97 EPS. And its reward for that performance was to be the #1 stock on the Dow Jones Industrials. (See GM's Earnings per Share chart and historical price chart below.)

* What company are we talking about? General Motors.

Much of GM's price increase was because of billionaire investor Kirk Kerkorian who owned 9.9 percent of GM shares and then considered raising his stake to 12 percent. This week Kerkorian signaled he would not acquire more stock. And, some of GM's rise centered around speculation whether a North American turnaround is really under way for General Motors ... or not.

How each stock on the Dow Jones Industrials went up or down this year ...

Below is the price performance for each stock on the DOW as of yesterday noon.

Note, that GM was the #1 price performer over AT & T, Hewlett Packard, and Merck by nearly a factor of 2.

At the bottom of the list, is Intel with a price loss for the year of -16.47%

Symbol COMPANY Year to Date % Move
GM GEN MOTORS 64.52%
T AT& T INC. 33.16%
HPQ HEWLETT PACKARD CO 32.62%
MRK MERCK CO INC 32.38%
DIS WALT DISNEY-DISNEY C 29.87%
VZ VERIZON COMMUN 20.58%
MCD MCDONALDS CP 20.58%
JPM JP MORGAN CHASE CO 19.83%
XOM EXXON MOBIL CP 19.28%
CAT CATERPILLAR INC 19.27%
UTX UNITED TECH 17.60%
BA BOEING CO 17.58%
PFE PFIZER INC 17.20%
HON HONEYWELL INTL INC 13.40%
AXP AMER EXPRESS INC 11.45%
KO COCA COLA CO THE 9.48%
JNJ JOHNSON AND JOHNS DC 7.75%
PG PROCTER GAMBLE CO 7.46%
DD DU PONT E I DE NEM 6.16%
MSFT MICROSOFT CP 5.43%
C CITIGROUP INC 5.34%
MO ALTRIA GROUP INC 4.52%
GE GEN ELECTRIC CO 3.40%
WMT WAL MART STORES 2.84%
IBM INTL BUSINESS MACH 2.80%
AIG AMER INTL GROUP INC -2.15%
MMM 3M COMPANY -2.41%
AA ALCOA INC -4.90%
HD HOME DEPOT INC -6.79%
INTC INTEL CP -16.47%

How does the Earnings per Share performance compare for GM vs. Intel?

You would think that if Intel was the worse stock, and GM was the best price performing stock, that the Earnings per Share performance for GM would show gains, and the EPS performance for Intel would show losses.

As you will see in the next two charts, the "exact opposite" is true.

Intel's Earnings per Share chart ...

A long term look at GM's price chart and performance ...

Below is GM's Monthly price chart going back to the end of 2001.

I circled the highs and the lows made during this period to yesterday's price.

What do you notice?

Each high was a lower high, and each low was a lower low. This is the definition of a down trend.

If it turns out that Kirk Kerkorian really is giving up his interest in controlling GM, then that means he would sell this 9% of GM and the stock will once again move down to new lows.

The point of discussing all of this, is the new highs for the DOW and what effect GM's price had on it. By my calculations yesterday, if GM's poor EPS performance resulted in the price of the stock being at neutral (a zero % gain for the year), then the DOW's price yesterday would have been 11616 ... which would have meant the DOW never reached its "all time high".

But ... it did, on the heel's of a stock that was making a retracement from a lower/low. On a stock that showed a 64% price gain for the year as Kirk Kerkorian tried to take control. On a stock that recently had a Q2 loss of over 3 billion dollars.

Doesn't make a lot of sense does it? Where would the DOW have been yesterday if Kirk Kerkorian never tried to gain control of GM, or it GM had been taken off the list of DOW stocks?

So, what's your opinion? Did the Dow Jones Industrials really make a legitimate new high? (Feel free to use the email link below and send the link of this page to your friends if you think they would find this interesting.)

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Marty Chenard

Author: Marty Chenard

Marty Chenard
StockTiming.com
Asheville, NC 28805
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Marty Chenard is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools and stock market models. As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL. He is an advanced technical analyst and not an investment advisor, nor a securities broker.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
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