If you want to see a pure intellectual property battle, look no further than the 30-stock Dow Jones Industrial Average ($DOWI) and its primary tracking vehicle, the SPDR Dow Jones Industrial Average ETF Trust (DIA). As we move into this year, the world’s oldest stock index is suffering from a difficult case of a divided personality.
On any given day, you can look at the tape and see a cluster of stocks glowing green, looking technically sound and ready for an exit, while the rest look brutal, bleeding money and showing multi-month lows. I’m encouraged by any sign that the market is starting to differentiate between stocks, as high correlation has been the theme of my views here for a while.
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However, the lack of follow-through in many Dow names may be a sign that this surge in value is a sign of bleak optimism. That is, traders jump aggressively on something that is blue-chip and down on its luck. But they tend to be tenants, not owners. So the movements pass. That’s sure how it looks to me.
This internal conflict resulted in a mission, which I cannot recall, at least at this level. Specifically, the Dow plays sudden, explosive, one-day spikes on days when the tech-heavy Nasdaq ($NASX) flatlines or slides lower. Financial experts are quick to shout that the big price cycle has finally arrived.
To me, it looks like the Great Pumpkin of “Peanuts” fame.
But don’t fall into the headline trap. When you go out and look at the actual long-term data, these short-term spikes are nothing more than tactical heads. Until now at least. Over time, the Dow has not been able to keep up with the S&P 500 ($SPX) or the Nasdaq.
That said, its composition, which is more diversified, less technical, and not overweight Magnificent-7-type stocks, gives DIA investors hope. Absolutely, that means.
A closer look at the DIA
Here is the DIA chart. This daily look shows what seems to be the reality. But breakouts are not what they used to be. So I’m sticking to announcing a new era for Dow 30 investors. In fact, I’d like to announce that, as I’m tired of what I think is the second coming of the dot-com bubble, which I think will end with a lot of disappointed investors. I don’t always use the word “really”.
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Let’s check out DIA’s best so far this year. Apple (AAPL) and Nvidia (NVDA) were the leaders coming into this year, along with Amazon (AMZN) and Microsoft (MSFT), the other two Mag 7 names on the Dow. But this year, Cisco’s ( CSCO ) revival, Caterpillar’s ( CAT ) impressive run, and the bank’s successful spending spree at Goldman Sachs ( GS ) are taking it up a notch. And Chevron (CVX), of course, thanks to the Iran war that broke out. I’m mainly looking at the far right column here, the YTD change.
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The losers bracket is dominated by fallen angels, if you will. Also, in the YTD column on the right, there are Nike (NKE) and Salesforce (CRM), well-known case studies of how a market can take a former leader and turn it around and screw it up. And American Express (AXP), another Dow name in the category of 15%-plus losses YTD, faced the threat of high-end consumers finally feeling the squeeze.
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The Dow is a collection of only 30 large blue-chip companies. Because the index is notoriously price-weighted, meaning companies with high stock prices determine the index’s score regardless of market cap, the performance gap between winners and losers creates a strong, violent tug of war.
When institutional money runs away from extreme technical valuations, it treats some of those expensive Dow pillars as short-term safe havens. But as shown here, DIA is very difficult in its own way, just one that favors finance and industry. So on days like last Thursday, when financial companies lead stocks, DIA steals the show.
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The Other Side of the Coin
But look at the other side of the book. The bottom half of the Dow looks like a corporate graveyard. Yet some legacy giants are being completely dismantled. It’s hard to look at a chart like NKE here and be optimistic. Even being the opposite of me as I am.
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There are many other weak charts within the DIA portfolio, including Home Depot (HD), another true blue-chip. But the other chip is a joke. This is at its stock price.
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This brings us to those occasional blue, aggressive days when the Dow rises 400 points while the QQQ falls 1.5%. This is not a sustainable practice. It is a mechanical artifact of algorithmic hedging and program risk rotation. When a mega-cap tech flyer like Nvidia or Apple hits the technology speed bump, macro hedge funds don’t back out of the money right away.
Instead, automated programs sell technology quickly and buy liquid Dow shares at higher prices to reduce their exposure to day markets. If your bull case is “hedge funds will use hedges, and our stock prices will go up,” you need to find something that won’t be forgotten in the headlines a week from now.
Yet there is some joy in Dow-ville. Amgen (AMGN) is one of the stocks on the DIA that looks poised to rally. But it’s not enough of this to convince me however that there is a lot of weight pulling in this esteemed index.
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In the meantime, DIA can provide a small cushion of dividend yield and relative short-term stability amid tech-led liquidity volatility. But it is not yet ready to rescue the stock market from a potential AI-mageddon scenario.
Rob Isbitts created the The ROAR Scorebased on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and build their own portfolios. For Rob’s written research, see ETFYourself.com.
At the date of publication, Rob Isbitts had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
