The Dow Report: Dow Theory and the Dogs of the Dow

By Tim W Wood CPA, February 3, 2006

As a part of the Dow Report, we are also going to be monitoring what is commonly known as "The Dogs of the Dow." The Dogs of the Dow is a "portfolio" of such that is based on the Top Ten dividend yielding stocks within the Dow 30 as of January 1st of each year. We will not only track the performance of the "Dogs" verses the Industrials, but we will also periodically look at the charts of the Industrials verses the underlying Dow Jones Top Ten Index, which is an index that approximates the Dogs of the Dow.

For 2006 the Dogs of the Dow portfolio includes:

Stock	Symbol	2005 Closing Price
Altria Group	MO	29.57
AT&T	T	24.49
Citigroup	C	48.53
DuPont	DD	42.50
General Electric	GE	35.05
General Motors	GM	19.42
JP Morgan	JPM	39.69
Merck	MRK	31.81
Pfizer	PFE	23.32
Verizon	VZ	30.12

Thus far, the Dogs of the Dow are up 13.79% for the year while the Industrials themselves are up .71%.

Below we have a daily chart of the Dow Jones Industrial Average in the upper window and the Dow Jones Top Ten Index in the lower window. These charts are as of the close on February 2, 2006. I have used blue lines to illustrate shorter-term non-confirmations and red to illustrate the current long-term non-confirmation. Notice that each of the short-term non-confirmations has ultimately resulted in an intermediate term decline. Unless the current short-term non-confirmation is corrected, there is little reason to expect the outcome of this non-confirmation to be different from any of the others. Actually, based on the current overall technical picture, it is looking as if we could see a modest decline into the early spring. But, also based on the current overall technical picture, it looks as if that will only set the stage for the summer rally. Then, as I look over the technical horizon a bit, it appears that when the summer rally begins to fizzle, the bear should return because the cyclical phasing for latter 2006 is not looking good.

Next, we have the Industrials verses the Retailers. Thus far, the Retailers have been unable to better their November high, much less their August high. Therefore, we have multiple degrees of non-confirmations at play here as well. It is also interesting to note that most of the non-confirmations occurring between the Industrials and the Retailers occurred at or very near the same time as the non-confirmations between the Industrials and the Top Ten. Therefore, unless this time is to be different, the outcome to follow this divergence is not expected to be any different than any of those from the past. Again, any weakness that comes out of this non-confirmation is currently expected to be modest and to set the stage for a move up into the summer.

In addition to the non-confirmations between the Industrials, the Top Ten and the Retailers, we also have the ongoing short-term non-confirmation with the Transports, as is illustrated in green below.

The February issue of Cycles News & Views is now available. In this issue I use historical trend quantifications to project the probable direction in both time and price for the move into the spring, the summer and what should then follow later in 2006. For more information, please visit www.cyclesman.com.

Tim W. Wood

Contact Information

Tim W. Wood CPA
Cycles Man
1545 Gulf Shores Pkwy, PMB #251
Gulf Shores, Alabama 36542
(504) 208-9781 Tel
Newshour Market Technician
Bio & Observation Archive
Email