Dow's theory is supposed to be the barometer of the market. In general the market doesn't care about one single statistic or policy implementation by the government. The market is the all encompassing knowledge of what the future will be. What does Dow's theory tell us about the prospects for the near term?
Dow's theory is telling us that the markets have hit bottom and are headed higher from here. However, this prognosis has one huge caveat. Only if the Dow Jones Industrial index continues to stay above the low that was reached on November 20, 2008 will the bear market rally remain in effect. Already the Transportation index has fallen below its Nov. 20th low as recently as Jan 20, 2009. Normally a re-confirmation of the bear market would have been signaled if both the Industrials and Transports fell below the Nov. 20 low. The fact that the Industrials hasn't confirmed the Transports by falling below the previous low and the rising volume since December 24th indicates that the markets are poised to move higher.
The risk to my outlook for the stock market is that both the Transports and Industrials fall below the lows of Nov. 20th at the same time. Falling below 7552.29, the Dow Industrials would have 4132.17 as its next resting point. This is not a wish on my part, it is only an observation as part of Dow's theory.
As an investor we need to approach this market with caution. As it stands, the news is very negative and there are more and more layoffs being reported. How are we supposed to commit our remaining investment funds (as opposed to savings) to the market after the painful experience of last year? Such a challenge is best answered by hedging your position by focusing on the strongest dividend paying companies that are out there. This way, if you're wrong about the stock going up at least you could hold and compound the dividends. Compounding only becomes necessary for those unwilling to sell after a certain amount of loss has been experienced. Take a look at my recent research recommendations on February 4th. These companies offer the best hedge against the prospect that the market could fall much lower.
Dow's theory is telling us that the markets have hit bottom and are headed higher from here. However, this prognosis has one huge caveat. Only if the Dow Jones Industrial index continues to stay above the low that was reached on November 20, 2008 will the bear market rally remain in effect. Already the Transportation index has fallen below its Nov. 20th low as recently as Jan 20, 2009. Normally a re-confirmation of the bear market would have been signaled if both the Industrials and Transports fell below the Nov. 20 low. The fact that the Industrials hasn't confirmed the Transports by falling below the previous low and the rising volume since December 24th indicates that the markets are poised to move higher.
The risk to my outlook for the stock market is that both the Transports and Industrials fall below the lows of Nov. 20th at the same time. Falling below 7552.29, the Dow Industrials would have 4132.17 as its next resting point. This is not a wish on my part, it is only an observation as part of Dow's theory.
As an investor we need to approach this market with caution. As it stands, the news is very negative and there are more and more layoffs being reported. How are we supposed to commit our remaining investment funds (as opposed to savings) to the market after the painful experience of last year? Such a challenge is best answered by hedging your position by focusing on the strongest dividend paying companies that are out there. This way, if you're wrong about the stock going up at least you could hold and compound the dividends. Compounding only becomes necessary for those unwilling to sell after a certain amount of loss has been experienced. Take a look at my recent research recommendations on February 4th. These companies offer the best hedge against the prospect that the market could fall much lower.
Remember, the Industrials are either going back to 10836.11, a gain of 31%, which would still be within the context of a bear market or the Industrials are headed down to 4132.17 a loss of 50%. Touc.
