Maybe things are looking up
THE CURIOUS INVESTOR | Dow Theory gives some reason for optimism
Investors could use a little good news, and maybe some is on the way. Believers in the Dow Theory, a system of technical analysis that forecasts trends from movement in the Dow Jones indexes, are watching their screens closely for what could be a turn toward bullishness.
The reason is that the Dow transportation index has been on a strong upward ride and took out its previous highs from early February. Dow Theory teaches that the performance of the transportation index -- made up of railroads and air shippers -- can be a bellwether for the industrials, producers of the stuff being shipped.
(AP)
This is not hocus pocus. The theory is supported by decades of analysis and academic research. But it is not a crystal ball.
Basically, its devotees want to see if a higher move in the Dow Jones industrial average will follow the transportation index, which would be an unmistakable signal that share prices will rise more.
John Kosar, president of Asbury Research in Lake in the Hills, said the intriguing Dow movements come as the market has gone through months of vacillation as investors try to decide if the worst of the credit crisis and the economic slowdown are past. He said another sign that the market could be ready for an advance is that many measures of trader sentiment are way out on the bearish extreme.
To Kosar, that reminds him of a lesson from his days dealing contracts at the Chicago Mercantile Exchange. "You look around the pit and when you see all the traders' positions are one way, the market has to switch. It can't possibly sustain itself," he said.
For Charles Carlson, publisher of the Dow Theory Forecasts newsletter in Hammond, Ind., the bottom line is this: 12,743.19. That was the closing point of the Dow Jones industrials on Feb. 1. He said that if the index can close above that mark soon, "the primary trend will be bullish."
Friday's 2 percent drop in the Dow left the index at 12,325.42. But volatility is up and the Dow has advanced or retreated by hundreds of points based on daily headlines. Carlson said it wouldn't take much to move the Dow into bullish territory.
LIGHTS OUT: The subprime backwash hit General Electric (GE), that steady cash machine. Friday, GE reported its first drop in quarterly profit since 2003. It said it had to reduce the value of some securities on the books because the seizing up of the credit markets meant they couldn't be sold. This, of course, happened days after CEO Jeffrey Immelt assured investors the company was on target toward hitting profit estimates.
"We hate disappointing investors," Immelt told his captive TV network, CNBC. "It's not part of the company. It's not part of the culture. We take accountability for that." Watch GE's disclosure of Immelt's pay package and top management changes to determine what he has in mind about the "we" being accountable.
GE shares fell Friday by 12.8 percent, more than at anytime since the big 1987 crash. They closed at $32.05. By the weekend, many analysts were saying the decline posed an unparalleled buying opportunity. When was the last time you could buy GE and earn a dividend yield of 3.9 percent?
99 BOTTLES OF BEER: Shares of Owens-Illinois (OI) had a hard week, starting off Monday at more than $59 a share and dropping to less than $55 before closing Friday at $55.61. The action had to do with the company's announcement that it manufactured beer bottles involved in a recall ordered by Boston Beer Co. (SAM). Inspectors found that small bits of glass were breaking off and getting into the beer. Nobody knows why.
So in OI (which sounds local but actually is based in Ohio), we have a company whose stock is going to be handicapped until it figures out the manufacturing flaw. But the worse news is for beer drinkers everywhere. Now they have to be afraid of slurping glass. Time to invest in the canning business.
TEACH AND TRADE: WexTrust Capital, a private-equity firm based in Chicago, has formed a subsidiary, WexTrade Financial, to teach trading skills. Courses will be offered for both novice and professional traders in a 9,000-square-foot space the firm has at 333 W. Wacker. Information is at wextradefinancial.com. WexTrust's CEO is Steve Byers, who also invests in downtown real estate.
CLOSING QUOTE: "Have you heard a lot about Chinese stocks lately? Neither have I. That's probably because the Chinese stock markets are experiencing a nosedive not unlike the Nasdaq plunge of 2000. . . . The reduction of available credit made it harder for growing companies to use leverage to expand their businesses, which called into question the lofty valuations given to high-growth Chinese companies. But unlike many of the Nasdaq stocks that faltered in 2000, a good number of Chinese stocks have posted not only positive earnings, but strong earnings growth too." -- trader Todd Wenning at fool.com
