Monday, February 8, 2010

Late day selloff puts the DJIA well under 10k

A late day selloff wiped out the gains from Friday's late push upward.  The DJIA is now comfortably below the emotional 10,000 level.  Everyone except for JPMorgan and GE were negative.

Below is the DJIA sorted in declining order of index weight.  I've written before about the DJIA's ridiculous weighting methodology, but as insane as it is, it's also part of the reason I like owning the index (through the DIA index fund).  

I was quoted at Minyanville near last winter's lows, pointing out how it was a positive that you could simply erase the bottom five stocks from the DJIA and it would cost just a scant couple percent:

If you look at the weights now, the bottom five account for 6.1% of the DJIA.  Is that a negative?  Not in my book.  A year ago, I had no confidence that the common stock of any of the bottom 5 would survive.  That turned out overly pessimistic, as only GM is gone.  (Well, SHOULD be gone - the doomed remnant of GM still trades among crazies willing to lose money on a sure wipe-out).   A look at the bottom five now shows for the most part MUCH healthier companies.  

--  Intel at 1.5% is a tragedy, I wish the stock comprised a far higher portion of the index.
--  Pfizer at 1.4% is unloved, trading at a PE of less than 8 on concerns about patent expirations.
--  GE and BofA combine for 2.3% of the DJIA.  I have no faith in their balance sheets, and have no clue where they're headed, though the current (steep) yield curve is great for BofA.
--  Alcoa engaged in SYA (Save Your Ass) financing last year, yet it saved the equity-holders in the long run... 

Copyright 2010 AlphaNinja

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