LG, except that there is no fundamental reason to desert the old Dow theory and looking for divergences between the transports and the Indu, the transport's job is still to move the goods that the Indu produce, and while there might be a segment of the economy which is now moved on wires and wirelessly, this segment (information, entertainment) is still not large enough relative to those goods that are moved physically. Unless you build a new model based on "high tech" vs "lower tech" that indicates divergences between these groups lead to future convergence of the groups (as the DOW theory predicate), I do not see this model as useful. The high tech divergence is due, IMHO, to perceived (right or wrong) higher growth in the high tech sector, some perceived immunity of the high sector to the economic cycle (go and tell that to the chip guys and their suppliers), but most importantly, to the need of money to find highly liquid investment in high growth industries, thus companies with 100 billions plus cap are concentrating within them a big chunk of the current excess liquidity and causing a big chunk of the present divergence. When will convergence occur and does it requires convergence to the lagging segment? I know not, I would only point out that the Russell 2000 is quite strong relatively, and thus convergence may occur due to excess valuation of the nifty, and redeployment of assets into the second and third tier good growth companies, this actually without, yet, a major bear market or a recession for that matter.
Now, the divergence of the transports and the Indu, that is something of concern, but could stay so for a time before a top is reached, thus my call on this market as "topping", and still seeing new highs for the Indu and the Naz in the next six to 9 months.
Zeev |
