The Dow Altimeter, as constructed by Edson Gould, is based on dividend payments made by the constituents of the Dow Jones Industrial Average (DJIA) as reported in the Barron’s section titled “Indexes PEs and Yields.” The Dow Altimeter information provides a graphical representation of fundamental data.
On January 23, 2018, we said the following:
“While the market appears destine for higher ground, it is worth noting that the 24,223 level is the new support level for the DJIA. If the DJIA fails the support level at 24,223 then the next stop is the 18,373 level.”
Below we have updated the Dow Altimeter and included the coincidence of buy indications based on the dividend history of the Dow. We believe this history of dividend payments provides strong evidence of when a bear market has come to an end along with a fair estimate of when a recession should come to an end.
A recession and a bear market is coming. We don’t know when, however, we can prepare ourselves with the necessary insight to better call the bottom (better than our July 2009 call for the stock market, our August 2009 call for the end to the recession and our December 2010 call for the bottom in real estate.
On October 25, 2017, we said of the Dow Jones Industrial Average Altimeter:
“How in the world do we believe that an already ‘overvalued’ market can possibly go as high as 34,885? We don’t believe it at all, instead, we’re going by the precedent of the extensive history of the stock market in the United States.”
So far, the Dow has exceed the percentage increase of the 1852 low of +284% when it went above 24,844.60 level. Now, the Altimeter is pointing to the next upside target of least resistance en route to the 34,885 level.
In the period from 1920 to 1989, the Dow Jones Industrial Average would consistently be undervalued or overvalued at set Altimeter levels (15 and 30, respectively). An investor could almost count on these general points to accumulate and sell stocks without fail. Note the various dates when a “sell” or “buy” indication was given. All points until after 1987 were useful indications for market under or over valuation.
After 1987, the Altimeter for the Dow Jones Industrial Average started to change. What has changed that made the Altimeter vary so much from the normal levels? We think it has to do with the selection of companies that are included in the Dow Jones Industrial Average with less of an emphasis on dividend payments, lower dividend yields and lower relative payout ratios. In addition, inclusion of companies like Visa, Apple, Microsoft, Intel and Cisco Systems has shifted the course of the index which might more appropriately reflect the changing nature of the U.S. economy, as seen in the chart below.
The Dow Jones Industrial Average Altimeter from 1920 to the present is posted below.
On May 20, 2014, we said the following about the Dow Jones Industrial Average Altimeter based on the work of Edson Gould:
“Currently, the Altimeter is closing in on the 2007 peak of 47.37. If the Dow were to attain the 47.37 level in the Altimeter, the index would sit at 17,062.67. There is no rule that says the Dow Industrials must stop at the prior turning point. However, our cautious nature instinctively pushes us to wonders if the run from the 2009 low is about to come to an end.”
Since that time, the Altimeter for the Dow peaked at 47.03 on March 2, 2015, just short of the 2007 level of 47.37, and has declined below the 32.05 support level. From a performance standpoint, the Dow Industrials has fallen -11.95% since March 2, 2015.
Naturally we can’t say that we predicted any of the changes in the market since May 2014. However, our primary goal is to observe indicators that most accurately guides our thinking about possible scenarios for the stock market. In this case, we believe that the best way to assess the possible scenarios is by applying Dow Theory to Gould’s Altimeter, as seen below.