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Posts tagged ‘Dow Theory’

Wealthbuilder Market Brief 1st March 2013 (Christopher Quigley)

By: Christopher Quigley

What a market. Even the most experienced traders  that I know are having a difficult time getting a handle on what is happening.  Wednesday’s market action caught a lot of folk napping. Monday’s 216 point drop in the Dow Industrials  convinced many that finally the much anticipated market “correction” had  arrived.

The slight “uptick” on Tuesday was a classic VIX buy  signal but it turned out to be a trap. Those traders who shorted the market on  the 26th were pulverized by the bullish 175 Dow point move on the 27th.

What can we make of such whiplash moves?

For me, regardless of the economy, the movement of  the market is understandable when you assess it through the paradigm of Dow  Theory. The market is powering forward because technically it is very strong.  This strength was first indicated by the 128 point breakout in the Dow  Transports on the second of January. Prior to this the Dow 20 had traded within  a trading line for nearly a year. It was perfectly clear to Dow Theory  aficionados that the momentum and the direction of any breakout from this “range  line” would be highly significant. The 307 point follow through move on the Dow  Industrials on the same day as the Trannies breakout confirmed the trend. With  Dow Theory  “ a trend once in place  continues until both indices confirm otherwise”. Nothing has happened in the  last few days to alter this January bull move. Thus the correct trading  strategy at the moment is to go long on pullbacks not short “potential” tops.

full report Wealthbuilder Market Brief 1st March 2013

Market Brief 20th. May 2011 from Wealthbuilder.ie

Wealthbuilder.ie

Our friends over at Wealth builder have sent in their latest market outlook

Thanks!

The volatility which was predicted in the last quarterly brief continues apace with the markets continuing to climb a “wall of worry” as is typical.

 On the basis of Dow Theory, the bull run is still in place with the Dow Transports indicating that new highs are anticipated.

 Technology is going through a tricky phase. This market is patchy due to the fact that there are some specific stellar winners and many definite losers. The dynamics involved in tech product development, cloud computing, social networking fads and web marketing strategy are so rapid that “old” business models quickly become stressed and dated.  Momentum demands exceptional growth. So one must do ones research well before investing in this arena. Apple (APPL), Netflix (NFLX) and Baidu (BIDU) are all looking very strong with management well up on their game. As always we recommend that you invest only on supported pullbacks.

 The big story at the moment of course is the collapse of commodity prices. This is good for the overall market in that oil and food price appreciation will hopefully be tamed somewhat. This will have a bearing on core inflation and the future ability of the FED to keep interest rates low. As long as this supportive policy is held in place the market should maintain its bullish stance. (An indication of a change in sentiment in the market will be indicated when the 20 DMA on the Advance -Decline line in the broad market averages starts collapsing below the 50 DMA and fails to recover).

 Our favourite commodity instrument, the Silver Ultra ETF: AGQ, was up nearly 100% since March. Its break below the previous low of 318.44 on the 2nd. May indicated it was a sell.  Currently Silver is technically broken so it will be some time before we can be sure the worst is over. Thus I would recommend you save your profits and keep your powder dry until solid technical support is in evidence.

 The social situation in Europe continues to spiral downward.  Here in Ireland economic conditions continue to deteriorate with little help being granted by Germany or France to the Irish government’s attempts to lighten its EU/IMF bailout conditions.

Greece cannot meet its rescue terms and is being given “more time” which is a default in any normal mans language. Of course it cannot be “officially” named as such given that this would kick in the credit default swap insurance militia and nobody wants to give them a free lunch, if at all possible. A recent Vanity Fair article opened the lid on the rampant corruption in Athens and it is hard to see how Greece was ever allowed to join the Euro when it was common knowledge that its taxation system was such a complete corrupt mess.

 Most interestingly the Madrid “sit down movement” is bringing a new dynamic into the Euro equation. Spanish youth have finally had enough. With 40% of under 30’s unemployed they want a change. They are educated, eager and ambitious and they do not wish to continue to live, with no income or future, in the homes of their aging parents. Should this movement adversely affect an already fragile Spanish banking complex it may bring Madrid one step closer to needing IMF assistance. That could be a potential Euro endgame.

  The one winner in all of this is Germany. It continues to benefit from the Euro arrangement in that it has access to a vast European market for its industrial produce yet benefits from a fixed Euro currency. However Berlin refuses to accept any responsibility for the “lite touch regulation” it allowed to develop at the European Central Bank. It would appear Germans are happy with representation without taxation. Under these circumstances it is hard to see how the Euro will survive over the next decade. Yes, on paper, the cracks can be glossed over and the can kicked down the road but at the end of the day Europe is not only an economy it is a society. Currently its social contract based on dignity, freedom, equality, solidarity, citizen’s rights and justice is crumbling and it would appear that Brussels, as of yet, does not “get it”. The original vision of the great men who founded the E.E.C. is being destroyed by short-sighted bankers, technocrats and bureaucrats. These mandarins are playing with fire. Monnet, Schumann and Gaspari would be ashamed of them.

Dow Transports: Weekly

Apple: Weekly

 Netflix: Weekly

 Baidu: Weekly

AGQ: Daily

Stock Market Warning Signs

By: Toby_Connor

We are now fast approaching the period when the next crisis should arrive.

On average the stock market suffers a major correction about every four years. In a secular bear market that cyclical trough arrives as the economy sinks into recession and a stock market bear bottoms out.

The last four year cycle bottom formed in March of ’09. That just happened to be the longest four year cycle in history. I’ve noted before that long cycles are often followed by a short cycle that compensates for the extended nature or the prior cycle. If that’s the case then the next four year cycle low is due sometime in 2012. (My best guess is in the fall.)

As we are still in a secular bear market then the move down into the four year cycle trough should correspond to another economic recession and cyclical bear market for stocks. Bear markets tend to last about a year and a half to two and a half years. If the next four year cycle bottoms in the implied timing band then the current cyclical bull should be topping soon.

As a matter of fact the stock market is already flashing warning signs. Three of the largest and most important sectors in the S&P have not confirmed new highs.

Another warning sign; Despite record earnings the market has only been able to move to marginal new highs and is now in jeopardy of reversing the recent breakout.

I’ve noted in the past that this is how major tops and bottoms are often established. Smart money sells into the breakout, or buys the break down in the case of a bottom. The trend then reverses and a major turning point is formed. Both the ’02 bottom and the ’07 top were put in this way.

The market is now at risk of a similar event as we’ve experienced a marginal breakout to new highs that is threatening to fail. Don’t forget this is happening against a back drop of record earnings.

When a market can’t move higher on good news something is wrong. And don’t forget bull markets don’t top on bad news, they top on good news.

If the market can recover and move to new highs the cyclical bull will be confirmed, but if the market continues to fade and drops back below the March 16th “tsunami” bottom it will constitute a failed intermediate cycle. If both the Dow and the Transports close back below that level we would have a Dow Theory sell signal and that would confirm the next leg down in the secular bear has begun.

It would also be a signal that the economy was unable to handle the spiking food and energy costs that were the direct result of Bernanke trying to prop up the financial system with his printing press. Like I said, printing money has never been the answer. Every empire in history has tried this approach and not one of them has ever succeeded with it. We won’t either.

full article at source:http://www.marketoracle.co.uk/Article28156.html

Dow Theory Update and Values

Submitted
 
 by Tim W Wood CPA on Fri, 28 Jan 2011

At present, we have a Dow theory non-confirmation in place that began in mid-January. According to Dow theory, we must operate under the assumption that the previously established trend is still intact until it is reversed with a move above or below the previous secondary high or low point. In this case, a downside trend reversal would require a move below the previous secondary low point. Until such time, the primary trend change that occurred in conjunction with the March 2009 low still remains intact. Now, as for non-confirmations, they serve as warnings of a possible trend change. Non-confirmations do not mean that a trend change is inevitable, because it is possible that the non-confirmation can be corrected. It is also possible that the previous secondary high or low point will not be penetrated. The current non-confirmation can be seen on the chart below. If this non-confirmation is not corrected then I know from my trend quantification work that there are statistical guides that can be used to help us gauge the meaning of this non-confirmation as well as the expected outcome. I will cover that all in the research letters and updates if it continues to develop. For now, this is a warning that must simply be watched and measured against the statistical and other implications. Don’t confuse non-confirmations to automatically be a “sell signal” because in accordance with Dow theory, that is a misconception. There is much more to the story that just a non-confirmation. Rather, it is a process in which statistical and other structural evidence must be understood, weighed and considered.

djia-djta-1-28 

In the last post here on January 14th I talked about bull and bear market relationships. In that post I explained some of the big picture reasons that the rally out of the March 2009 low must still be viewed as a longer-term bear market rally. One of the items that I did not cover there was value. Value is another historical marker of secular bear markets. Historically, the dividend yield will be roughly equal to the price earnings ratio at secular bear market bottoms. I have used the S&P data here because I did not have this data as far back on the Industrials. At the 1932 bear market bottom the yield was 10.50% and the P/E was just under 10. At the 1942 bear market bottom the yield was 8.71% and the P/E was 7.3. At the next great bear market bottom in 1974 the yield was 5.9% and with a P/E of 7.24. If we take this same reading at the 1982 low the yield was 6.2% and the P/E was 6.9. For the record, these P/E ratios are based on Generally Accepted Accounting Principles and not the bogus George Orwellian methods of today. At the 2009 low, the P/E was 26 with a dividend yield of 3.2, which is hardly at par. Therefore, based on this historical measure, there is also no indication that the 2009 low marked the bear market bottom. It is for this reason along with the historical bull and bear market relationship issues covered in the last post here that I continue to believe the rally out of the March 2009 low is a longer-term bear market rally much like was seen between 1966 and 1974. I have also included a chart of that period below.

  djia-djta-cycles-1-28

I told my subscribers before the anticipated rally out of the 2009 low even began that it would be a rally of a higher degree and that the longer it lasted the more dangerous it would become. What I meant was, the longer this rally lasts, the more convinced people will become that the bear market bottom has been seen. In looking at this chart of the 1966 to 1974 period above, don’t you think that it would have been pretty convincing that the worst was over as the market moved up during the 26 month rally into the 1968 high? As is the case now, it was the Dow theory phasing, bull and bear market relationships and values that warned of the pending phase II decline that finally did follow and that carried the market down to another new bear market low. But, then came the rally separating phase II from phase III. In this case it was a 32 month rally. Stop and think about it. After another leg down into the 1970 low don’t you think it would have been an even harder sell to convince people that the low had not been seen? Yet, Dow theory phasing, bull and bear market relationships and values warned that the bottom had not been seen and once again they proved correct. In January 1973 the Industrials turned back down and plunged to yet another new bear market low in December of 1974. It was then, only weeks after that low was made, that Richard Russell was able to identify the bear market bottom and he did so because he understood Dow theory. Based on the bull and bear market relationships, we should be operating within a little larger version of the 1966 to 1974 bear market period. I realize that this is probably a hard concept for most to understand. But, if we stand back and look at the historical relationships we see that this bear market has likely not run its course. I have found specific DNA Markers that have occurred at all major tops since 1896 and it is these markers that can be used to identify the top of this counter-trend bear market advance. I sincerely hope that people are listening and that they understand the context in which this rally is unfolding.

source: http://www.financialsense.com/contributors/tim-wood/dow-theory-update-and-values

Wealthbuilder.ie Market Brief Jan 2011

15th. January 2011

By Christopher Quigley

There can be no true recovery in the American stock market without a recovery in   real estate. The property companies that I follow are all showing signs of solid strength and momentum.

This significant development indicates that the bull trend that commenced in March 2009, though in overbought territory at the moment and due a correction, is still very much in place.

Accordingly we will probably see the former highs in the Dow 30, Dow 20, NASDAQ 100 and S & P 5600 tested this year and on balance theses former key technical points will be breached. Thus nearly two years after the move initially commenced a formal Dow Theory “New Bull Market Buy Signal” can finally be announced to the world.

Market Brief

Wealthbuilder.ie

22nd. October 2010

 Getting Some Perspective

From a Dow Theory point of view this is the situation as I see it. The market is giving very strong signals particularly on the Transports side. My key break point is 5265 to give the first indication that the new Bull Run has commenced. We are currently at 4735. Near but not quite there. My key break point on the Dow Industrials is 13566. WE are currently at 11146 some 2420 points away.

 From a purely momentum perspective if the current positions on the Dow Transports and the Dow Industrials are solidly broken up through, even though the market is very overbought (based on fast and slow stochastics and the McClennan Summation index) it will very bullish short term. This situation is corroborated by price action on the NASDAQ and the S & P.

 As we are currently down the line on a fairly positive earnings season and it is understandable that when it ends there should be a correction, but if it proves to be mild it will offer an excellent buying opportunity to participate in your favourite value and momentum targets.

  Dow Transports: Weekly

 

 

Dow Jones Transport Index


History of the Dow Jones Transports Index


The Dow Jones Industrial Average is the best-known U.S. stock index, but not the oldest. The Dow Jones Transportation Average has that honor.

The first Dow Jones stock index, assembled in 1884 by Charles H. Dow, co-founder of Dow Jones & Company, was composed of nine railroads, including the New York Central and Union Pacific, and two non-rails, Pacific Mail Steamship and Western Union. That was the ancestor of today’s transportation average.

The iron horse powered the U.S. economy in the late 19th century. “The really strong companies at that time were primarily railroads,” says Richard Stillman, professor emeritus of the University of New Orleans.

It wasn’t until 1896 that the Dow Jones Industrial Average appeared. The same year, Mr. Dow published a list of 20 “active” stocks, 18 of which were rails-the direct predecessor of the transportation average. On Sept. 8, 1896, it stood at 48.55.

Over the years, railroads such as Union Pacific (the only remaining original stock) have been joined in the average by the likes of Delta Air Lines, Federal Express and Ryder System.

The story of the rails in this century is one of pride, fall and partial revival. In 1916, 254,000 miles of rail lines crisscrossed the country, nearly twice the current figure. But regulation of prices and “featherbedding” by unions stunted railroads, says Richard Sylla, an economic historian at New York University. The stagnant industry was pounded by competition from trucks, revitalized waterways and, finally, airplanes.

According to Professor Sylla, the Pennsylvania Railroad was the country’s biggest corporation in the 1870s. A century later, its descendant, Penn Central, filed for bankruptcy.

Since 1980, deregulation has brought a revival of sorts. Railroad employment has fallen nearly 60 percent, but ton-miles shipped and the industry’s net income have soared.

Dow Theory

An elaborate analytical system dubbed Dow Theory (so named by people who followed Mr. Dow, but not by Mr. Dow himself) holds that the Dow Jones Transportation Average must “confirm” the movement of the industrial average for a market trend to have staying power. If the industrials reach a new high, the transports would need to reach a new high to “confirm” the broad trend. The trend reverses when both averages experience sharp downturns at around the same time. If they diverge for example, if the industrial average keeps climbing while the transports decline watch out!

The underlying fundamentals of the theory hold that the industrials make and the transports take. If the transports aren’t taking what the industrials are making, it portends economic weakness and market problems, Dow Theorists maintain.

For more information  you might like to look in on  www.wealthbuilder.ie

Attached is the latest information on the US ecomomy

Rail+Time+Indicators+May+2010 PDF

Rail Time Indicators is a non-technical summary of many of the key economic indicators

potentially of interest to U.S. freight railroads. It is issued monthly free of charge by the

Policy and Economics Department of the Association of American Railroads

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