AlphaDow

Archive for March, 2010|Monthly archive page

DOW THEORY CONFIRMS BULL MARKET

In Uncategorized on March 20, 2010 at 9:32 pm

This week Dow Theory confirmed that the primary tide is still UP.  The Dow Jones Industrial Average and the Dow Jones Transportation Average both closed at 17 month highs.  The initial Dow Theory BUY signal came in July of last year,  which reversed the SELL signal from November 2007.   As John Murphy of stockcharts.com fame wrote “(that’s) a good thing for the market and the economy.  That’s because transportation stocks are cyclical in nature and do better when investors are optimistic on both.”

Writing over 110 years ago, before the advent of the computer and the benefit of back-testing, Charles Dow outlined a methodology for gauging the primary tide of the stock market.  There have been 63 Dow Theory signals since, with over 75% being accurate (email info@alphadow.com).  Chart 1 shows the new high in the Dow Industrials and Chart 2 shows the Dow Transports:

Chart 1

Chart 2

QUESTION: Should we take profits and try to buy back lower?

ANSWER: No.  A trend following approach like Dow Theory requires that you hold your winners as long as possible.  That’s because no one knows how high this market can go.   Trying to pick tops and bottoms is a fools game.

QUESTION: My friend’s broker is recommending people go to cash because he thinks the market will go down again.  Do you agree?

ANSWER:  There is no way to tell for sure.  Right now the probabilities favour higher prices.  The best course of action is to hold.  When the trend is over, Dow Theory will let us know.

QUESTION:  What should my portfolio look like now?

ANSWER:  That depends on your risk tolerance.  Check out our AlphaDow page or our ETF Advisor page for ideas.

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WE GOT PAST PEARL HARBOUR AND WE WILL WIN THIS WAR – WARREN BUFFET

In Uncategorized on March 10, 2010 at 3:23 pm

I posted last month that the February swoon was a dip in an ongoing BULL market.  Apparently the Oracle of Omaha thinks so too.  Economic data continues to improve (except average hours worked and “under-employment” rate) and the market has hit news highs on several fronts (small caps, consumer discretionary, biotech).  Subscribers to this site took initial trading positions in January 2009 and got fully invested on July 24th, 2009.  If you follow our ETF Advisor page, you bought Banks, Mid-Caps, TSX60 and Tech along the way.  The market is now substantially higher and the question becomes “What now?”

Answer: Until we get a Dow Theory sell signal, stay invested.

AlphaDow followers continue to hold index funds that replicate the TSX Index or S&P 500, depending on your preference.  I use Powershares for the TSX because they have a tax deferred “class” and we can move to money market without tax consequences.  In my tax deferred account I prefer the ETFs (pictured above) because I can put a stop-loss in the market and forget about it.

Question:  “How high can it go?”

Answer: Nobody knows for certain.  Therein lies the rub.

If pressed for an answer I think we have one more good-sized move higher.  Dow Theory suggests BULL markets move in 5 waves.  We just had the 4th corrective wave end in the second week of Feb.  I suggest the 5th wave up is underway.  Continue to use stop losses as prescribed – Mr. Market is a lot smarter than me.  Email info@alphadow.com for more information.