Bear Markets for the Dow Jones Industrial & Transportation Averages from their peaks to their ultimate lows.
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- Japan
- Market Indicator
- Price Momentum Indicators
- Richard Russell
- Silver
- Speed Resistance Lines
- U.S. Dividend Watch List
1896-2020: Dow Transports and Industrials
Below is a chart of the performance of the Dow Jones Transportation Average (DJTA) and the Dow Jones Industrial Average (DJIA) from their respective low to their respective market peaks.
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Posted in 1896
TSX 60 in Review: Week 34
The following is the breakdown of the Dogs of the TSX (here) in week 34, compared to other fundamental ratios. Continue reading
Posted in Dogs of the TSX
Bank Stocks and Rising Interest Rates
On August 6, 2020, we published an article about the trend in interest rates and our expectations for the future. In this posting, we’ll attempt to address the impact of interest rates on bank stocks in a secular rising trend. We’ll provide real world example to highlight the good, bad, and ugly.
All of our work is based on precedent rather than theory. If the conventional wisdom is that stock markets fall when interest rates rise then we check the interest rate cycle and confirm the claim. If the “wisdom” doesn’t hold up we reject the claim and provide evidence.
Interest Rate Cycles
In the case of interest rate cycles, the secular trend is so long that people generally take what they see in the last 30 years and use that as the template for their analysis going forward. Unfortunately, the interest rate cycle, a full peak to peak or trough to trough, is 54 years or more. To gain more background, we refer to wholesale price from 1790 to 2006.
The above chart is from the 1947 book Cycles: The Science of Prediction by Edward R. Dewey and Edwin F. Dakin. Notice how it was predicted that the cycle peak would occur in 1979 (actual 1980) and the cycle trough was predicted in 2006 (actual 2008). These are good reference markers for assessing the quality of analysis.
If, according to Dewy and Dakin, the last secular rising trend was from 1952 to 1979, it would be helpful for us to review the performance of bank stocks in that period to better understand the impact of rising rates. Below, we have provided data from within the rising rate environment to see what the potential outcome could be for bank stocks going forward. Continue reading
Posted in Bank of America, bank stock, banking, Corn Exchange Bank, interest rates, National City Bank
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Are the S&P 500 and the Dow exactly the same?
We can’t emphasize enough how we are not stock market bulls. We simply present the data.
In fact, we have a bearish leaning bias after critically reading the work of Richard Russell from the 1990’s until his passing in 2015. Below we are going to take an unusual and highly suspect look at the similarities between the S&P 500 Index and the Dow Jones Industrial Average.
Revealing the Truth about the Market
Many market observers complain how irrelevant the Dow Jones Industrial Average is, lacking 470 companies and being price weighted. However, the Dow Jones Industrial Average is the perfect conservative model for future outcomes of the S&P 500 Index.
Did you know?
From a level of 810 to 2,749, on the S&P 500, it took approximately 5,820 trading days from February 24, 1997 to April 8, 2020. In the same number of trading days, the Dow Jones Industrial Average increased from 810 on August 18, 1966 to 2,759 by October 12, 1989.
What the Dow Did was Staggering
If we step back from the already stunning revelation above and look at the bigger picture, there is more to this scenario than meets the eyes. For example, our starting point at 1966, the Dow Jones Industrial Average was coming off of the biggest bull market in history. From the low in 1942, the Dow increased from 92.92 to as high as 995.15 in 1966, a +971% increase.
A 10-fold increase sounds enticing, however, this was with the backdrop of rising interest rates and growing national debt. For a sense of perspective on the overall sentiment at the time, the following is from Richard Russell’s Dow Theory Letter in 1967:
It wasn’t until the economy faced the uncertainty of interest rates (fear that rates would not continue to climb) in 1966, that the market fell apart and began trading in a range until 1982 (1966-1982).
What Does This Mean?
The Dow Jones Industrial Average was a stodgy heavy industry index when it managed to accomplish from 1966 to 1989 what the S&P 500 has accomplished in the heavily weighted technology index has accomplished from 1997 to 2020. There should be critical questions for those who claim that the S&P 500 is better than the Dow Jones Industrial Average.
Based on the data above, there is absolutely zero difference between the two indexes when put into the proper context. For now, we have painted a general picture of how the two indexes matched performance over exactly the same period of time. In our next posting, we explore what the future holds for both indexes.
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Posted in DJIA, Richard Russell, S&P 500
Silver: India and China as a Catalyst
In a September 28, 1929 BusinessWeek article titled, “Silver Is Cheap” is the following commentary:
“The price of silver fell to $0.50375 U. S. cents per fine Troy ounce, the lowest price touched since Sept. 18, 1915.”
“India and China are the markets for the silver of the world and, as they prosper or keep the peace, silver rise[s]…”
The argument for India and China as a catalyst for the potential rise in the price of precious metals has been around for a long time. However, the reality is very different from what is hoped for.
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Posted in iShares Silver Trust, Silver
The Market Ratio
In doing some research, we came across a ratio that we thought was very interesting. For now, we’ll call it the Market Ratio. For us, the Market Ratio says everything that encompasses the goal of generating returns that are beyond that of the S&P 500 Index. The Market Ratio is charted below from September 10, 1987 to August 7, 2020.
As seen below, the compounded annual growth rate generated by using the Market Ratio over the entire period in question is +14.28% for the LEADER strategy versus using the LAGGARD strategy at +1.66% and compared to the S&P 500 index compounded annual growth rate of 10.63%.
Below we detail the specifics which, on paper, seem to generate these exceptional returns. Continue reading
Silver: August 2020
On August 25, 2019, we presented upside resistance targets for the price of silver. In that posting, we said the following:
“The above levels are where the price of silver should experience a reversal of the rising trend. The more dramatic the rise the greater chance that silver will decline -66% of the current rise.”
At two of the three target ranges, the price of silver experienced reversals. In the first instance falling from $19.81 to $11.81, approximately -40%.
The second reversal seems to be playing out from the $29.26 level.
We can’t emphasize enough the fact that Silver isn’t the topic here, it is price. If it trades with a price attached to it on a regular basis then there are reasonable levels at which to expect reversals on the way up or down. The work of Charles H. Dow and Edson Gould inform us on what to focus on when observing price.
Above is an inset chart of the price of Silver with the upside resistance targets. Below, we provide a full chart of the price of Silver with the upside resistance target prices. Also, we review the downside targets based on the run-up from the March 18, 2020 low to the $29.26 high. These targets will assist in managing risk. Continue reading
Dogs of the R2K
Below is the breakdown of the Russell 2000 stocks based on companies that pay a dividend. Continue reading
Golden Cross Analysis: Transports & Russell 2000
As the market continues to move higher, there will be more companies and indexes reaching the Golden Cross technical pattern. This is evident by the recent article, Dow transports and Russell 2000 see ‘golden cross’ materializing, which suggests that this pattern is bullish for the two indexes. Our recent article on this technical indicator shed light on how successful this pattern is when it’s applied to the Dow Jones Industrial Average.
The tool we developed allows us to quickly analyze the pattern against various indexes. Let’s see how successful the Dow Jones Transportation Average and Russell 2000 are with technical pattern known as the Golden Cross. Continue reading
Posted in Death Cross, Dow Jones Transportation Average, Dow Transports, Golden Cross, Russell 2000
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Golden Cross – How Golden Is It?
With the market on an upswing again, there is a resugence of bullish articles. A recent article we came across pertains to a bullish technical pattern known as Golden Cross. The article, A bullish ‘golden cross’ forms in the Dow Industrials, did not explicitly say this is a buying opportunity. However, it was implied that a rally is upon us based on the last time this indication occurred on March 19, 2019.
The obvious next question we would ask the author is, how golden is this golden cross? After all, we have done an in-depth analysis on the opposite market indicator, the Death Cross, and found that it was not so deadly after all. So let’s get into the data and find out. Continue reading
Intel 10-Year Targets
Below are the valuation targets for Intel (INTC) for the next 10 years. Continue reading
U.S. Dividend Watch List: August 7, 2020
The market is now just a few percentage points away from the all-time high set in February 2020. This test is a critical one for the S&P 500. However, our team will monitor that, as well as, the Dow Theory indicators as a true test of the market sentiment. With the market near the high rather than the low, there are only a handful of companies on our watch list this week. Continue reading
Posted in Dividend Achiever Watch List, Dividend Achievers, Dividend Watch List
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Income Bellwethers: September 2019
In September 2019, Morningstar.com published their DividendInvestor which contains their Income Bellwether Watchlist. Below is the performance of the stocks based on the top highest and lowest dividend yield from August 9, 2019 to August 7, 2020.
As the data continues to demonstrate, low yield generally outperforms high yield. This has been resoundingly shown in our Dogs of the Dow in the period from 1996 to 2019.
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Of the stocks that beat the performance of the S&P 500 gain at +14.82%, 74% had dividend yields below that average yield of the entire watchlist.
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The entire list of stocks gained +1.72%.
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The conversion/merger of United Technologies marginally impacted return data.
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Of note is the change in the performance by selecting the 2nd, 3rd, 4th stocks versus the top 3.
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No group beat the S&P 500 which is severely affected by lopsided market weighting.
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Top 10 low yield stocks beat the Dow Jones Industrial Average.
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Posted in Dogs of the Dow, Income Bellwethers, Morningstar
Public Storage (PSA) Q2 2020
Industry representatives say that steadiness of FFO is more reflective of a REIT’s health. For the purposes of determining the future direction of the stock price, we prefer the wide variability of the net income figure. (data source)
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