Strength and Weakness in the DOW

June 27, 2018  |  Michael Reilly

General Electric Co. (GE), once the most valuable company in the world, and a symbol of American industrialism, has unceremoniously been shown the door.

On June 26, 2018, GE – the last remaining original member of the DOW, was officially removed from the Dow Jones Industrial Average (DJIA).

The numbers look pretty grim. General Electric has lost almost $140 billion in market value over the last year.

In fact, year-to-date (through 6/25), GE is the worst performing member of the Dow, down -25.67%, while the Index itself is down -1.89% following Monday’s market action.  

That chart looks downright awful. GE’s stock price began showing signs of trouble in January 2017. Then, in October, GE tanked…and never recovered.

Since January 3, 2017, GE has lost 56.70%.


While the news has been about GE’s fall from grace, another investment that tracks the performance of the DOW Index – the SPDR Dow Jones Industrial Average ETF (DIA) – gained 25.65%.

A theoretical investment in DIA on January 3, 2017 and held thru today, could have generated an eye popping 82.35% swing in potential returns vs. a similar investment in GE!

So, if General Electric hasn’t contributed to the DOWs surge in the past year, what has?

The answer may be found using a simple relative strength matrix, like the one I’ve constructed below. At Rowe Wealth, we constantly use algorithms to create matrices like this to track the strength of our inventory.

Investors looking to add DOW companies to their portfolio, or anyone who’s ever applied relative strength to their investment planning, may want to pay close attention.

Here’s  a matrix containing all 30 current members of the DOW (prior to GE’s removal).

I’ve highlighted the top 5 and bottom 5 companies, based on their relative strength ranking when compared to each other.

Here are the results.

As you can see, GE ranks dead last. #30 out of 30, the weakest of the weak.

GE also ranks in the bottom 10% of an Electronics sector matrix (similar to the matrix above, but not shown here for sake of time and space).

Meaning, GE is not a stock that would have warranted positive attention, and it’s been that way for quite some time now.

For those interested in learning more about our use of technical attribute scores, we’d be happy to answer any questions you may have. Simply click here to schedule an appointment.

For now, focus only on those 30 rankings.

Applying our DOW relative strength matrix would help identify stocks ranked high enough to be considered for investment consideration if we were looking to take positions in any of the DOW components.

#1 – Intel (INTL) +15.17%

#2 – Boeing (BA) +16.06%,

#3 – Microsoft (MSFT) +18.45%,

#4 – United Healthcare (UHA) 16.17%

#5 – Visa (V) +19.09%

(returns calculated YTD as of June 22, 2018)

All 5 stocks are in positive territory for the year and have outperformed the DOW by double digits..

The weakest DOW members according to our matrix (the bottom 5) are stocks that most investors would likely want to avoid at this time.  Year-to-date returns (12/29/2017- 06/22/2018) for these 5 stocks are…

#26 – Dow/DuPont (-4.87%)

#27 – Coca-Cola (-4.05%)

#28 – IBM (-5.97%)

#29 – P&G (-14.30%)

#30 – GE (-23.92%)

Each of the companies – the 5 ranked lowest in our relative strength matrix, have lost significantly more than the DJIA..

As you can see from all this data, we’re at a time when stocks with high Relative Strength are consistently outperforming the market.

By using relative strength matrices to observe these trends, investors can balance their portfolios accordingly, often allowing them to minimize risk while simultaneously increasing their growth potential.  

If you’d like to see how your own portfolio measures up on a relative strength matrix, or if you’re considering rebalancing and want to know the strength of some of your future picks, don’t hesitate to schedule a meeting with our team. We’re happy to answer any questions you may have.

Best Wishes,

Mike Reilly, CFP

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