2. DJIA stocks and some basic statistics
3. DJIA stocks cluster in our Self-Organizing Map
4. Long outlook for this week is not as strong as Short outlook
5. Cluster statistics:Difference between Long and Short clusters widen
For explanation of methodology and terminology, see http://www.technifundamentals.com/2010/07/explanation-page.html For this week, let's abandon our usual format for analysis. After all, it will be more of the same in terms of market outlook- rangebound. But if you look at image 3 which shows that S2 is the Long cluster and S3 is the Short cluster, and then look at image 4 which shows that Red area denotes Long while Purple denotes Short and Green/Yellow is wishy-washy, you will find that most of S2 is Green/Yellow. This means that Long signal is not as strong as Short signal. Will there be a melt-down? As at now, [excluding chain-linked events which may yet emerge during the week] the danger is not significant, though probability of intensity of Bearishness has increased during this week. As shown by difference in length of bars of model variables of clusters S2 and S3 [see image 5].
But the topic of discussion this week is about what will happen to US stocks for the months ahead. There is one clear trend that has emerged and should not be ignored: THERE WILL BE A WIDENING OF SPREAD BETWEEN THE PERFORMANCE OF COMPANIES WITH INTERNATIONAL BUSINESS [WHETHER DIRECT EXPORTS OR WITH OPERATIONAL FACILITIES OVERSEAS] AND COMPANIES WHICH STILL DEPEND ON THE U.S. DOMESTIC MARKET. This should be the main criteria when analysts do their analyzing. It is difficult for me to get direct data of a Company's percentage of exposure to international business. But a good proxy is to look at the components of the DJIA. Everyone of them, a household name internationally. With their brand name, big market cap and established status, it is safe to assume that they have ventured abroad, and that international business comprises a significant proportion of their revenue and profit. If that is true, then the spread between the S&P500 and the DJIA should be widening? Is this true? Image 1 shows that the evidence is irrefutable. Since 2005, the big blue chips of the DJIA have increasingly moved away from the S&P500 [of course the S&P500 also contains all the 30 component stocks of the DJIA, but out of the other 470, many are still largely dependent on the domestic economy. This is a clear wake-up call for American companies to venture abroad NOW! They should get all the help they need to venture out into the world, and the U.S. government should extend all the help that these Companies need.
But the topic of discussion this week is about what will happen to US stocks for the months ahead. There is one clear trend that has emerged and should not be ignored: THERE WILL BE A WIDENING OF SPREAD BETWEEN THE PERFORMANCE OF COMPANIES WITH INTERNATIONAL BUSINESS [WHETHER DIRECT EXPORTS OR WITH OPERATIONAL FACILITIES OVERSEAS] AND COMPANIES WHICH STILL DEPEND ON THE U.S. DOMESTIC MARKET. This should be the main criteria when analysts do their analyzing. It is difficult for me to get direct data of a Company's percentage of exposure to international business. But a good proxy is to look at the components of the DJIA. Everyone of them, a household name internationally. With their brand name, big market cap and established status, it is safe to assume that they have ventured abroad, and that international business comprises a significant proportion of their revenue and profit. If that is true, then the spread between the S&P500 and the DJIA should be widening? Is this true? Image 1 shows that the evidence is irrefutable. Since 2005, the big blue chips of the DJIA have increasingly moved away from the S&P500 [of course the S&P500 also contains all the 30 component stocks of the DJIA, but out of the other 470, many are still largely dependent on the domestic economy. This is a clear wake-up call for American companies to venture abroad NOW! They should get all the help they need to venture out into the world, and the U.S. government should extend all the help that these Companies need.
As for investors take a look at image 3 where S1 is the cluster that represents the S&P500 stocks. Note that all the DJIA stocks are also in this cluster [meaning they will have the characteristics of this cluster]. But the DJIA stocks are very closely positioned to each other and merit forming a sub-cluster by themsleves. If I increase the resolution of the SOM, there will be a fourth cluster comprising the DJIA stocks. This sub-cluster will become increasingly distinct in its characteristics and behavior. [Except for Alcoa, Bank of America and Travelers, which seem to be different kind of stocks as evidenced by their locations on the SOM] So if the market does a melt-down, either buy the DJIA components or ETFs of Asian stock markets like Singapore, Hong Kong, China, Indonesia, India or Brazil. [The fundamental statistics of the DJIA components were obtained courtesy of ValuEngine, and if you subscribe to their ValuEngine Institutional package, you'll get access to all Valuation, Growth and Quality models].
