DOW JONES AVERAGE down to 6,000 or 5,500???

2009...DOW JONES AVERAGE down to 6,000 or 5,500 ?????

Investors all over the world follow the DOW index of 30 stocks…that’s right, I am amazed at how few people know that this index is composed of only such a small group of stocks.

These 30 stocks alone, have the daily eye of the world, investors all over the world watch this number….the “Dow was up 200 points, the Dow was down 400 points..”etc.

As I watched the forecasters who are attempting to predict where the market will be this year, their predictions are as varied as one can only speculate. Some are calling for it to go back to 10,000-11,000, other see it “steady…in a range of 7,800-8,000.”

Do these people live on the same planet ?

Do these forecasters do any research to back up their forecasts, or do they just talk not knowing at all what comprises the DOW-what makes it move up or down…???

I did my own non scientific analysis of the individual stock that comprise this daily index. As a result, I liked the fact that McDonald’s was on it since their dollar menu items and coffee choices are driving up their profits. I like spending $1 on a meal that presents a great value.

Then as I looked at the other stocks that comprise this index, I started feeling that there was a great black cloud over it, and I wondered how could anyone in his right mind consider that this group of stocks are going to go up in price/value this year.

For instance, there was General Motors-a long lived component of this index.

I can safely predict that it’s over for this stock, even though it does not have far to go to get to ZERO.

Other components included an industrial metals producer, a manufacturer of earth moving equipment, and engines for trucks, a retailer of building products for the home and for building contractors, a theme part operator, a computer manufacturer, a prestigious credit card issuer who is writing off unpaid balances from high FICO score clients who are not paying their bills.

There is also a mix of others that also scared me, but not as much as this group listed above.

Now let’s start the analysis:

If people are out of work or have diminished incomes do they spend $2,000 a day at a theme park in a far away expensive resort, that sells a soda for $5 ? No.

If the home building is at a low point that nobody can even remember, is the home building products retailer going to sell lot’s of lumber and things related to building ? No.

Are contractors going to buy new earth moving equipment and new trucks with engines that have new mandates for pollution, and there is less business for them to haul ? No.

If people with high previous credit scores can not pay their bills, will they pay their unsecured fancy credit card balances ? No.

Will we all go out and buy a lot of new personal computers ? NO.

Well that’s our analysis of where these stocks will go. Would you see a reason to buy any of these, if their 2009 future looks bleak ? No.

There are those that may well do ok, like WAL-MART which is a component of this index, but the others look like SELL candidates to me, rather than HOLD candidates.

If these all decline, where will the DOW be this year ?

Remember, in 1987, the last great market decline…the Dow was at 1,000 !!!!!!! Does that feel that long ago ?


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