You may not like it. You may blame the Fed for propping the market up with endless QE, you may note the market is overvalued, and that bull markets don't last forever. But the market is a bullish one. (Chart via Yahoo.)
How now, Dow Theory?
By Mark Hulbert
CHAPEL HILL, N.C. (MarketWatch) — Where does the venerable Dow Theory say the stock market is headed?
It’s an important question for any of a number of reasons.
The Dow Theory is perhaps the oldest market timing system that remains in widespread use today. And it also has a good track record: Two of the three Dow Theorists monitored by the Hulbert Financial Digest have beaten a buy-and-hold in the stock market over the last decade: Jack Schannep, editor of TheDowTheory.com, and Richard Moroney, editor of Dow Theory Forecasts.
Fortunately for investors, both of these Dow Theorists believe we should be giving the bull market the benefit of the doubt—notwithstanding the government shutdown and the threat of a Treasury default.
To understand why, it’s helpful to review the three Dow Theory preconditions for a sell signal:
•Step No. 1: Both the Dow Jones Industrial Average and the Dow Jones Transportation Average must undergo a “significant” correction from joint new highs.
•Step No. 2: In their subsequent “significant” rally attempt following that correction, either one or both of these Dow averages must fail to rise above their pre-correction highs.
•Step No. 3: Both averages must then drop below their respective correction lows
Keep reading: How now, Dow Theory? – Mark Hulbert – MarketWatch.
