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December 2, 2005

A reader's review of the Dow's last fall from grace, Fri, Dec. 2, 2005, 1:43 PM

The high esteem held by Wall Street analysts for Dow 30 components has always impressed me as being something more than simple acknowledgement of a proxy for Corporate America. I have always believed the Dow 30 as being a Spinable City" if you will.

Over 35 years, I have watched the constant procession to Financial Entertainment TV of talking heads touting Dow component issues whenever the Dow was in need of a boost. Sometimes that happened a lot at the peak of a market cycle like 2H99-1H00, and sometimes at the bottom of one, like 4Q02-1Q03.

Do you recall a few weeks ago when I said that Wall Street needed to get the tech stocks involved in the year-end" rally, so that was why Dow Jones & Co (MarketWatch, Barron's and Wall Street Journal) were so helpful in sending me headline stories touting Hewlett-Packard (NYSE: HPQ), a Dow 30 component?

In fact I made a joke of it. Do you recall that I told you that my crystal ball could see a certain headline, which I quoted in advance, and then told readers to watch for it at certain times during the following 30 hours or so?

You see; I can have fun. That's how I trade. I know the market's rigged, in a manner of speaking, so I play along.

You want proof? I told you what the headlines would be, and then I showed them later as they came out that weekend. Then I told you that HPQ would trade at a low on the next day, Monday Nov-14 and then proceed to join the rally".

And here's the second proof of hypothesis:

This isn't rocket science, ladies and gentlemen. If you want to find bank robbers, you go to the banks.

In any event, Wall Street analysts absolutely loved the Dow 30 issues across the board at year-end 1999. I did the research, which I published, to show that 98.5 pct of analysts " the ones with the most education, experience, contacts, information, resources and expertise to put it all together for you, were bullish on the Dow stocks at the absolute peak.

You know, the one right before the crash?

So MarkM decided to go into Value Line to look at what we all saw later that Wall Street missed, when issuing their bullish (strong buy-buy-hold) opinions at the top. Here are his words, providing info he takes full credit for, right or wrong. I agreed to publish it because it shows there is never a reason to chase the stocks of even the world's best companies.

Thank you Mark:

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MMM did not suffer a real sell-off during the correction. It did, however, reach a height of 52.8 mid-year 1997. It then slid off to 32.8 by mid-year 1998. That's a decline of 38%.

AA reached a market high of 45.7 in Spring of 2001 then slid to 17.6 by late Fall of 2002 a decline of some 61%.

MO ended 1998 sitting at a high of 59.5. At the end of 1999 it had fallen to 21.3 and by early 2000 to 18.7, a tumble of 69%.

AXP saw its shares rise to 63 in 2000 only to fall to 24.2 in 2001. That's a decline of 62%.

AIG reached a zenith of 103.8 in 2000 and slid all the way to 42.9 by Spring 2003. From high to low is a spread of 59%.

BA saw its share price climb to 70.9 in late 2000. By Spring 2003 you could buy BA at 24.7. That's a discount of 65%.

CAT reached its high in early 1999 at 33.2. By late 2000 its shares could be bought at 14.6, a 56% reduction.

C hit 59.1 in Summer 2000. In Fall of 2002 you could buy C at 24.4, 59% off retail.

KO climbed into clouds during 1998, ascending to 88.9! By Spring 2003 you could buy KO at the pedestrian price of 37. That's a markdown of 58%.

DIS achieved its all-time best of 43.9 in Spring 2000. By Winter 2002 it had fallen to 13.5, a tidy reduction of 69%.

DD climbed new heights at 84.4 in early 1998 then ratcheted down to 32.6 in 2001. From high to low is a gap of 61%.

XOM did not reach its nominal high until late 2000 at 47.7. It fell to 29.8 in the Summer of 2002. That's a 38% discount at the pump.

GE was flying high at 60.5 in Fall 2000 but came to earth at 21.3 by Spring 2003. The fall cost it 65% of its value.

GM raced ahead to 94.9in 1999. By 2003 it had stalled at 29.8, for a crack-up of 69%.

HPQ saw the moon at 77.8 in early 2000 but touched bottom at 10.8 (!) in 2002. Top to bottom? 86%!

HD sat at 70 per share in 2000. In Spring 2003 you could buy it for 20.1. Take 71% off.

HON rose to 68.6 by Summer 1999. In late 2002 it had sunk to 18.8, a decline of 73%.

IBM soared to 139.2 in 1999 then tumbled all the way to 54 in late 2002. High to low was a 61% adjustment.

INTC touched the sky at 75.8 in Fall 2000 but was slightly more affordable at 13 (!) in Fall 2002. That's a cut of 83%

JNJ was hardly touched by the Bear Market. It made a quick tumble from 53.4 at the end of 1999 to 33.1 (38%) in Spring 2000 then resumed its march upwards.

JPM was resting at 67.2 in Spring 2000. Fall 2002 looked a little different: 15.3. That's a 77% haircut.

MCD must have sold a lot of burgers in 1999 to reach a share price of 49.6. We must have been on diets in Spring 2003 because it then sold for 12.1. That's leaner by 76%.

MRK looks back fondly on a share price of 96.7 at the end of 2000. By 2003 it had fallen to 40.6 (58%) and it hasn't stopped yet.

MSFT had its heyday in 1999 reaching 60 per share. By Fall 2002 it was selling for 20.7, a decline of 66%.

PFE rocketed to 50 in early 1999 and fell to 25.1 by late 2002. That's a decline of 50%. It hasn't been any better lately.

PG had a sharp sell-off like JNJ in 2000. It went from 59.2 to 26.4 in a matter of weeks, shook it off and steadily rose. That little spill cost it 55% of value.

SBC reached maximum share value at 59.9 in 1999. By Spring 2000 a trader could buy it at 18.8. That's a slide of 69%.

UTX topped at 43.8 in mid-2001 and quickly crashed to 20 by Fall. 54% came off in that correction.

VZ had its moment in 1999 also: 69.5. By late 2002 it touched bottom at 26, for a 63% slip-up.

WMT looked invincible at 70.3 in 1999 and much more mortal at 41.4 in Fall 2000. Traders appreciated the neat discount of 41%."

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Moreover, you can easily see all this on the free Value Line Reports of the Dow stocks because they print the annual hi-lo for 12 years across the top of the charts.

You can also check the per-share fundamental values compared to share prices across this lengthy time horizon, and compare them to the present situation. In doing this exercise you get an appreciation for the concept in markets called harmonic oscillation".

Posted by Posted by Bill Cara on December 2, 2005 01:43:34 PM | Category: U.S. Dow 30

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