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Jan 15, 2007 - Issue #041
Dogs of the Dow are back?
Dow score card for the week ending 1/12/07.
DJ-30: 12556.08 +158.07 +1.27%. In the Real World: 52.24 +0.65 +1.27%.
UP: 23 (+10), Down: 7 (-10).
Trends (weekly): This is the subjective part.
Rising 16 (+2):
BA, C, +*DD, +*DIS, GE, HON, HPQ, IBM, JPM, KO, MCD, MO, +*MSFT, +*PG, VZ, WMT.
Consolidating 12 (-1):
+*AA, AIG, AXP, GM, HD, INTC, JNJ, MRK, PFE, -*T, UTX, -*XOM.
Declining 2 (-1):
+/- denotes change of direction.
* denotes change of category.
Dogs of the Dow are back?
In case you're unaware, the so-called Dogs of the Dow theory consists of the 10 highest
yielding stocks in the Dow. The 5 stock Dow Dogs are the 5 lowest priced stocks among
the 10 highest yielders.
Whether you buy the 10 stock or the 5 stock list, the idea is to rebalance the portfolio
at the end of each year and then go play golf for the rest of the year.
The theory automatically generated returns of 15-18% annually for many years. Not bad
for a bunch of blue chips!
When this theory first became popular, most of the Dow components were large dividend
payers and there were always changes in the lists. Over the years, many of the components
have been replaced by stocks that paid little or no dividends.
The result was the list never changed. The same stocks kept appearing over and over
again, results suffered, until even the author of the theory declared it to be "dead".
Now that dividends are back in favor, many of the low payers have increased or started
paying dividends for the first time causing a "resurrection" of the theory.
However, because many of the components still do not make the top 10, the results are
still not what they used to be. So much for getting rich automatically. It looks like
we're going to have to work for it.
Which is why I favor relative strength and significant trend line analysis utilizing
different time frames for selection and timing purposes. Besides, I don't play golf.
Speaking of which, the price surge this week has caused many trend lines to increase their
angle of ascent which is the markets' way of indicating where to exit if the trend lines
Putting in accurate trend lines is subjective and laborious and, therefore, not generally
practiced. Which is precisely why I do it.
Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!