I saw your charts, and I said they were very good. However, the Dow rise excludes the transports, so it’s a bearish indicator. Ritholtz talks more about the divergence, “What I find so astonishing about these divergences is the Transports, depsite the 20% drop in oil and 30% drop in gasoline, cannot keep up with the Dow. Intriguing.” 10/11/06 How strong is the rally anyway? “While the Dow exceeded its January 14, 2000 high (11,722) last week, only 10 of the 30 stocks in the index are higher now than they were back then.” 10/10/06. “On Wednesday, we looked at the breakdown of Dow components, surprised to discover that only 10 of the 30 Dow components were above their 2006 2000 highs. Four stocks — Boeing, United Tech, Caterpillar and Altria — were the primary drivers, pulling the Dow higher despite the drag of so many other relatively weak components. 15 of the 20 Dow stocks still below their prior highs are down substantially, with GM and Intel off ~60%, and Microsoft still down by 51%, and Home Depot and Merck off ~ 40%.” 9/29/06

I’m also not impressed with the supposed Dow high. Peter Schiff wrote, “adjusted for the CPI the Dow’s January, 2000 peak would equate to over 14,000 in today’s dollars….n the second place, the Dow Jones consists of just thirty stocks. If you look at broader market averages, such as the S& P 500 or the NASDAQ Composite, the former is about 13% below its 2000 high, while the latter is 55% below.”

It seems like a few stocks are pulling up the indices. This is a weak rally, and is a bet that the economy is slowing enough that the Fed will cut interest rates, causing a second long boom. You already know my position. Again this is proof that the markets are not forward looking, they are inefficient, and whoever these investors are who are driving up the prices are obviously not aware we are a Bubble Economy ready to pop.