Dow Theory

[Bullitt]

In case you were wondering where we are in the Dow Theory, this guy did an unbelievable job breaking it down for us. Awesome charts!

http://benbittrolff.blogspot.com/2007/11/dow-theory-hints-of-bear-market.html?referer=sphere_related_content

Of course, Dow Theory is subject to great debate...

[Bullishreturn]

Thanks for the link. Interesting reading!

The guy mentions the breakdown of the Dow Transports as being one of the reasons why those who say we are about to have a rally are wrong.

I'd say that the reason the Dow Transports are all down, has in very large part to do with the higher cost of oil. You can't drive trucks or fly airplanes as profitably if you planned for one price of oil, and now you've got almost double that price a year later. As this closing in on $100/barrel oil continues, we're going to have a lot of oil dependant companies showing lower profits, and with it, a decline in those company stocks.

We'll have to see how it all plays out.

Plan on more expesive shipping costs, and plane tickets.

[nnuut]

Thanks for the link. Interesting reading!

The guy mentions the breakdown of the Dow Transports as being one of the reasons why those who say we are about to have a rally are wrong.

I'd say that the reason the Dow Transports are all down, has in very large part to do with the higher cost of oil. You can't drive trucks or fly airplanes as profitably if you planned for one price of oil, and now you've got almost double that price a year later. As this closing in on $100/barrel oil continues, we're going to have a lot of oil dependant companies showing lower profits, and with it, a decline in those company stocks.

We'll have to see how it all plays out.

Plan on more expesive shipping costs, and plane tickets.
Expensive shipping cost have arrived. Inflation is alive in the price of energy!! BIG TIME!!
I priced sending some household items by Yellow Freight from Georgia to Las Vegas, forget it!
325 pounds for $1300.00 :mad: 2660

[Bullishreturn]

if you need to move 325 pounds to Vegas- you need this webssite:

http://www.uship.com

It's kind of like Ebay for shipping.

You put out there what you have to ship, and where is has to go to, and people bid how much they will charge you to take it.

[nnuut]

if you need to move 325 pounds to Vegas- you need this webssite:

http://www.uship.com

It's kind of like Ebay for shipping.

You put out there what you have to ship, and where is has to go to, and people bid how much they will charge you to take it.
Thanks James. I'll check it out. :D

[Pilgrim]

Recipe for a meltdown

The primary culprits behind the market turmoil are sky-high stock prices -- and it's only going to get worse, writes Fortune's Shawn Tully.

Analysis worth reading.

http://money.cnn.com/2007/11/27/news/economy/tully_meltdown.fortune/index.htm?postversion=2007112804

[Bullitt]

Times getting bad? Missed quarterly estimates? Sales down? Just blame subprime mortgages! I mean, what else could it be? They compose a whole 5% of American mortgages. Realistically, how much more is the average American spending in gas for their vehicle monthly? $20 tops?

People say these things because they hear it in the media or they hear their co-workers talk about it around the water cooler. Smart Money is the Dow Theory. Smart Money is buying at these levels.

[weatherweenie]

[quote=Bullitt;134791]Realistically, how much more is the average American spending in gas for their vehicle monthly? $20 tops?
[quote]

Guess I'm above average, as I'm spending $20 more per fill up. I fill up every 7-10 days. :notrust:

[Frixxxx]

Guess I'm above average, as I'm spending $20 more per fill up. I fill up every 7-10 days. :notrust:

I ride a motorcycle for my work transportation. 5 day work week. Prices averaged from my QUICKEN budget.

2004 I was paying $1.74/g * 5 gallons = $8.70 a week
2005 ------------ $2.30/g * 5 gallons =$11.50 a week
2006 ------------ $2.80/g * 5 gallons =$14.00 a week
2007 ------------ $3.10/g * 5 gallons =$15.50 a week

This is the only item in my budget that has gone up 200+% since 2004.:cool:

[Bullitt]

Well, what can I say? You guys proved me wrong. At least we're lucky enough to get that federal pay increase every year along with locality pay increase every now and then. Without that I'd probably be 'living in a van down by the river' with Matt Foley as my only neighbor.

[hessian]

Hey Bullitt,
Apparently you don't work for DoD. I'm on the new NSPS (with Navy). No guarantees here! All based on "performance" - yeah right! Supervisors being told to give everyone "3s" (on "5" scale), regardless of performance.

They can also pass on no increases- if funds are not there. Most recently, I've heared Sec'y Gates may be handing Army civilians "pink slips" to maintain funding for Iraq war.

Its a brave new world!
And, don't get too comfy - because I hear other Fed gov't may follow!!!
VR

[Bullitt]

Another article about the Dow Theory being subject to interpretation.

http://www.financialsense.com/Market/wood/2007/1130.html

[Bullitt]

"...at that time the existing Primary bearish trend may be trying to change. But, until such time there is simply no evidence, in accordance to classical Dow theory, to support any claim that the Dow theory has turned or is turning bullish at this time." Tim Wood, www.cyclesman.com (http://www.cyclesman.com)

Richard Moroney, author of Dow Theory Forecasts Newsletter, is an avid follower of the Dow Theory. He still recommends that his readers keep 25-30% in cash until the Dow Theory triggers a buy signal. www.dowtheory.com/ (http://www.dowtheory.com/)

I'll keep you posted....

[Bullitt]

The magic number we're looking for here is 12,743. Since the Transports put in a high above February's high, the Industrials need to confirm with a close above it's February 1st closing price. This move would, in theory, confirm a new uptrend in the general market. It would not signal an end to the Bear Market Signal under Dow Theory.

www.dowtheory.com (http://www.dowtheory.com)

[clester]

I ride a motorcycle for my work transportation. 5 day work week. Prices averaged from my QUICKEN budget.

2004 I was paying $1.74/g * 5 gallons = $8.70 a week
2005 ------------ $2.30/g * 5 gallons =$11.50 a week
2006 ------------ $2.80/g * 5 gallons =$14.00 a week
2007 ------------ $3.10/g * 5 gallons =$15.50 a week

This is the only item in my budget that has gone up 200+% since 2004.:cool:
An analyst on CNBC said gas would go to $4 by summer:mad:

[Bullitt]

The magic number we're looking for here is 12,743.

Transports keep storming higher even though the front page news and coffee break talk is usually about how bad the economy is, Allegedly.

Confirmation of a new bullish uptrend at 12,743 is just within reach...

[Bullitt]

Confirmation of a new bullish uptrend at 12,743 is just within reach...

Unless your MO is buying the top and selling the bottom, disregard the headlines and turn off CNBC.

New Buy Signal under the Dow Theory will be triggered today at the close.

[Bullitt]

Depending on who you get your Dow Theory information from, we're either in a pullback from a prior buy signal or we never got a buy signal in the first place! The bullish Dow Theorists claim a retracement to 12300-12400 should be expected and recommend some small cash positions for additional buying on weakness at those levels. The other side says that the Dow Theory never gave a buy signal in April.

I don't know, somebody's right, somebody's wrong. It's amazing how many different interpretations of a basic theory there can be.

[Bullitt]

Nothing much changed in the Dow Theory. Depending on who you read, they are either treating this as a pullback or a major bull trap.

Most seem to agree that the break of the lows in the Dow caused a non-confirmation of a new bearish trend. In other words, if the Transports break their Jan. lows, the primary downtrend is confirmed, and who knows when it will end.

Dow theory is not a very difficult concept, but the opinions gyrate from newsletter to newsletter. Here's a list of Dow Theory Newsletters along with their CXO ratings if anyone is interested in any further reading. After a while, you might just end up establishing your own Dow Theory opinion.

1. Dow Theory Forecasts www.dowtheory.com (http://www.dowtheory.com) (Richard Moroney)
the accuracy of Richard Moroney's stock market forecasts, based on a small sample, is just above average. Confidence in this conclusion is low.

2. Cyclesman www.cyclesman.com (http://www.cyclesman.com) (Tim Wood)
Tim Wood's stock market forecasting accuracy since April 2003, generally focused on a long-term bull-versus-bear contest, is somewhat below average. Confidence in this conclusion is fairly high.

3. Dow Theory Letters www.dowtheoryletters.com (http://www.dowtheoryletters.com) (Richard Russell)
Richard Russell is well below average in predicting stock market behavior. Confidence in this conclusion is moderate.

[JTH]

After a while, you might just end up establishing your own Dow Theory opinion.

Thanks for the links Bullitt, I've been wanting to do some reading on this subject. :D

[Birchtree]

Richard Russell is suggesting that, far from condirming that a bear market is in progress and presaging further market weakness, a close in the Transportation ZAverage below its January low (4398.97) might instead signal that the market's decline is about over. I would keep a close eye on the Utilities.

[Bullitt]

Richard Moroney from Dow Theory Forecasts posted a sample of his most recent newsletter, Dow Theory Forecasts, in Barron's this past weekend.

How Much Cash to Stash
Dow Theory Forecasts by Horizon Publishing
7412 Calumet Ave., Hammond, Ind. 46324

July 21: Our recommended cash position depends on the market's primary trend and the opportunities we see in individual stocks. While it has become difficult to argue that the market's trend is up, the values available in the market appear more attractive than they have been in years. Good values can become better values, and we would view a breakdown in the Dow Transports below the March low of 4,398.97 as a reason to raise our cash position. But for now, we still see reasons to keep our cash position at 15% to 20%.


The Transports have not confirmed the bearish trend. With a close in the Transports below 4,398.97, both the Dow Industrials and Dow Transports would be trading below prior significant lows -- and the validity of the April bull-market signal would be in question. Without new lows in the Transports, recent action represents divergence -- a reason for caution, but not a clear indication under the Dow Theory. [The Dow Transportation Average was recently at 4,916]....


High-quality growers are trading at attractive valuations. The average trailing price/earnings ratio of S&P 1500 stocks has dropped close to 18, a 13-year low. The average company's earnings growth has held up well, partly because of continuing strength in energy and technology...Going forward, the size of our cash position will hinge importantly on whether energy and tech can maintain their operating momentum -- and whether other sectors can deliver improved growth.
-- Richard Moroney
http://online.barrons.com/article/market_watch.html

www.dowtheory.com (http://www.dowtheory.com)

[Bullitt]

Quick little update on where we stand in Dow Theory Land....

On the DJIA we're watching the July lows of 10,962 and the Transports we're watching for a break of 4,653 which would signal a new bearish trend.

Richard Russell, another Dow Theorist, has this to say about the July lows.

All the above are in favor of the bear market designation. The action has not been typical bull market action. If we are in a bear market, then following the current rally, the market will turn down again to test, and probably violate, the July l4 lows (Dow 10962.44).http://www.gold-eagle.com/gold_digest_08/russell081108.html

Like always I guess we'll have to wait and see!

[Bullitt]

Yesterday gave a Dow Theory non-confirmation sell signal. DJIA broke the prior lows, but the low wasn't confirmed by the transports. It will be interesting to see whether or not yesterday qualifies as an actual break of the lows after today registered such an enormous accumulation day. One would think it would, but stranger things have happened.

On a side note: This day, 9/16/08, may have possibly been the highest volume day ever on the NYSE.

[Bullitt]

Regardless of what the market did today, Dow Theory triggered a new bear market signal yesterday at the close. The Transports just couldn't carry the weight any longer. I'm sure the bears are saying, I told you so, but that's largely irrelevant when following a systematic trading system. Both the Transports and Industrials will need to make higher highs to get back to bullish mode. While it depends on who you follow for Dow Theory, the bear market signal usually means it's a good time to be building up cash by whatever means necessary.

This should be interesting, the last bear signal was triggered in 11/07, if I'm not mistaken, and the markets got hit pretty hard for months thereafter. Dow Theory did get anyone into the nice 10%+ rally we had from March to May after confirmation from both the Transports and Industrials.

[Birchtree]

With a close below 4398.97 in the Transports, both the Industrials and Transports would be trading below prior significant lows - and the validity of April's bull market signal would have to be questioned. We closed at 4503.89 with an intraday low of 4440.80 on the Transports. Richard Russell has stated previously, that far from confirming that a bear market is in progress and presaging further market weakness, a close in the Transportation Average below its January low might instead signal that the market decline is about over. So we are still on a secondary nonconfirmation of the decline. If the Industrials rebound to close above 13,058.20 and the Transports close above 5492.95, the bullish trend would be reconfirmed. How long will I have to be patient?

[Bullitt]

Jack Schannep is sticking to his buy signal from 10/7 which he admits in hindsight was a bit early. I don't understand his models or what correlation he has to the Dow Theory, but he masquerades as a Dow Theorist nonetheless.

See his latest prophecy at Marketwatch (http://www.marketwatch.com/news/story/dow-theorist-schannep-stomped-not/story.aspx?guid=%7B08F1B8E1-8F41-4A7B-81AE-729294EA8C30%7D&dist=msr_1)

From now on I believe we will want to be mostly in stocks for most of the time. A confirmed Bull market isn't that far away: plus 19% on the Dow would be at 9,730 and the S&P at 1,102 ... It looks like the month of October has once again been a "bear killer" for the seventh time out of the last 26 bear markets -- an extraordinary 27% of all bear markets have ended in just that one month.Mr Schannep has challenged all other alleged Dow Theorists since 1998 to compete with his Dow Theory models. According to CXO Advisories, he's takes first place with a 64% accuracy.

You can see the history of his calls at www.thedowtheory.com (http://www.thedowtheory.com).

It's interesting to note that all other Dow Theorists that I follow have either moved to recent sell signals or are still sitting on the Lilly Pad predicting more of the same.