Sunday, July 19, 2009

Where can the DOW go?

After last week's move, they'll start reaching for numbers again. The play on the DOW is the ETF's, and most would just rather buy the DDM (30.67) which gives you 2X the DOW upside, or just shorting the DXD (44.41) which gives you 2X the DOW downside, because these ETF's have a built in churn.

Now, most people won't do this trade, because they think that the DJIA just had its move. After all, it went up 7.3% last week.

But did it go up 7.3% last week, because its starting another move up?

The bears will disagree, but we heard the same thing, all the way up, after every move, since 666, and everyone of their arguments was just bunk.

But how are we going to see the prices that the bears envision? You can't. The Dow divisor won't allow it.

The current DJIA divisor is 0.132319125. Thus 1/.132319125=7.55748678. That means that IBM, at $115.42 x 7.55748678 is worth 872.28 DJIA points. Didn't IBM just announce better earnings and better numbers going forward? IBM is over 10% of the DOW. So where are the points coming from?

Here's a simple exercise. Take the 30 DOW stocks, look at the charts and the fundies, and you should be able to get an appropriate target for the individual DOW 30 stocks, and where you think they are heading.

Dow Stock--- Current price--- Target

AA-------- ------10.22--------- -14
AXP------------- 28.03--------- 33
ATT------------- 23.98--------- 27
BAC------------- 12.89---------- 22
BA-------------- 41.36---------- 57
CAT------------- 33.99----------42
CVX------------- 65.12----------72
CSCO----------- 20.51 ---------- 22
DD-------------- 27.57---------- 34
XOM------------ 68.52---------- 79
GE ------------- 11.65---------- -18
HPQ----------- -39.98----------- 48
INTC----------- 18.79----------- 22
IBM------------ 115.42--------- 123
JNJ------------- 59.23------------66
JPM------------ 36.89----------- 42
KFT ------------ 27.43----------- 31
MCD------------ 57.84----------- 62
MMM----------- 62.92------------77
MRK------------ 27.68----------- 37
MSFT---------- 24.29------------ 27
PFE------------ 14.96 ----------- 19
KO------------- 50.32------------55
HD------------- 24.67------------29
PG -------------55.62-------------62
TRV----------- 40.42-------------48
UTX------------53.80 ------------67
VZ--------------29.59 ------------35
WMT -----------48.49 -----------57
DIS -------------24.51 -----------32


Throw in your stock targets, and the Dow 30 adds to 1359. Multiply that number by the Dow's divisor of 7.55748678 and you have 10,270.

Now if these old staid blue chips, get to these targets on the above table, where do you think this market is heading?

When we hear targets of 10,270 or so, for the DJIA, sometimes we don't think what that will mean to the stock prices that make up the index.

And if the bears say that we are heading down to revisit the lows, ask them to plug in their numbers, and show us how.

They can't do it, because it can't happen.


Anonymous said...

Thanks for the targets, but what's the time frame?

Palmoni said...

Year end

Anonymous said...

Intuitively, you know that the "everything back to where it was" trade should have disastrous consequences. But on the other hand you have the US government giving away huge slabs of cash, you have China rigging everything, you have analysts rigging estimates, and you have investment banks pumping away with a kind of abandon never before seen in the market. If they can keep buying futures, holding leveraged ETFs, and owning common stock, then this sham'll blow up to '07 levels. Look for an S&P P/E of 35-40, and the DOW at 14,000.

Why's gold holding at $950 while every industrial metal shoots up, and inventories are mysteriously drained despite flat exports and production? The CPI'll zoom higher. Well, wait 'til Goldman decides to start buying.

Palmoni said...

it would make sense for things to get way wilder--just like you are saying!

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