Morning Audibles 8.4.10

This is the 2nd attempt at this exercise...


Back near the April 1220 highs in the S&P, I had a post which reflected how the largest "weighted" stocks (DOW weights are ranked by stock price) seemed to have been a large ingredient of the "secret sauce" that seemed to be pulling the overall indices farther than they seemed to need to go based on the overall economic environment... 


It seemed STOCK PRICES were on a mission (and both the DOW & S&P were close to 61.8% re-tracement levels of the moves from the October 2007 highs to the March '09 lows)... 


What was UNCANNY to me though was the fact that many of the largest components of the DOW seemed to be doing the lions share of the work... Many had fully recovered their 2007 highs, and some were nearing ALL TIME HIGHS...


Here's a quick look at the largest DOW components since the April 2010 highs:

IBM

Nearing FULL RE-TRACE  - Nearing ALL TIME HIGH

 MMM

Nearing FULL RE-TRACE  - Near ALL TIME HIGH

CVX

Well beyond 61.8% re-trace  - At July '08 levels (pre-China Olympics)

UTX

Past 61.8% re-trace  - At October '07 levels

MCD

HAS FULLY RE-TRACED April  - Within a buck of ALL TIME HIGH

CAT

Nearing FULL RE-TRACE  - At July '08 levels (pre-China Olympics)

BA

At 61.8% re-trace - Very close to decade long reverse H&S

---WHAT ABOUT SOME TRANSPORTS?---

UPS

Past 61.8% re-trace - Very close to reverse H&S (from '07)

---SMALL CAP INDEX---

$RUT

Small Caps have lagged the July moves in the large DOW components (yet the $RUT was "late to the party" in doing the DEATH CROSS)...

$INDU

DEATH CROSSED earlier on, but now it seems hell bent on erasing that from memory... Note that many of the above listed DOW components haven't DEATH CROSSED at all (McDonald's is hardly even close)...

There is nothing necessarily sinister about this phenomenon... In fact, it may be very close to reflecting either some economic reality and/or technical reality... 

What I noted (in looking back further), is that the same type of phenomenon occurred in the period between October 2007 - September 2008... These same stocks performed VERY WELL during that time period (while the rest of the market, namely financials, were "teetering" and/or getting cannibalized)... It's as if money that was in equities for investment tended to stay in these names for no other reason other than that were performing decently on a technical basis (not doing DEATH CROSSES or terrible things like that)... After all, we know most "Brian's" out there probably only look a a chart once every few years or so...

Perhaps, (on a relative basis), they're doing well now on certain fundamental merits such as:

- cost reductions

- halfway decent balance sheets

- decent cash flow

- better credit ratings (or access to credit)

Basically - "at least they don't SUCK"...

Maybe it's a simple matter of yields being so low on Treasuries, some money is being used to RENT OUT dividend yields for a brief period of time... Though it's hard for CV to wrap his head around that "risk-reward" phenomenon and give it green light...

But it would also seem that the comparisons to the Oct 2007 - September 2008 timeframe is undeniable... So it would also seem that sooner or later the stocks themselves will be exposed to any hiccup in the system that forced the type of mass liquidations which were brought about by the Lehman crisis...

When giants fall, the earth shakes... Or in other terms, you don't want to lose your best horses who are pulling the chariot...