Bark Like a Dog, Dow Jones ~ The Risk Averse Alert

Tuesday, July 21, 2009

Bark Like a Dog, Dow Jones

Most seasoned stock market players talk down the Dow Jones Industrials. The claim is, what, 30 stocks? How representative is this of the market?

Well, in a former day when bankruptcy was less prevalent the Dow 30 represented about 35-40% of the U.S. stock market's entire capitalization. So, if Wall Mart and its 20% share of the retail market is a helpful benchmark, why not, then, the Dow Jones Industrials?

There is serious money locked up in the thirty companies making up this index. Its performance is telling, then.


First thought is Carl Spackler... "Bark like a dog!" Large caps are significantly under-performing the broader market. This speaks of the capital starvation that is the larger macro issue no one is considering. Where better to raise capital than those companies flush with vested interest?

And that volume! It's a picture of pathetic. Why it's almost as meager as what accompanied the index's advance at the start of the year. And we all know what followed then.

I mention this because the Dow Industrials' price-RSI performance is quite similar here. RSI is confirming the index's push into nominal new high ground, post-March bottom, much like was the case at the start of the year.

Technically speaking, the end is near. Practically speaking, however, so long as there are suckers willing to continue holding their equity stakes, confusing a short squeeze with a "new bull market," then just how much the market might hold up is something of a quandary.

My better sense supposes a relatively buoyant period might carry us into autumn. This is not to say the present short squeeze likely will persist unchallenged. Rather, it only is to suggest that, near-term, the market's projected decline probably will not unfold in a devastating straight line. Instead, something like what unfolded going into early-February might be in order here.

Fast Money
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