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
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