Thursday, April 30, 2009

Up, Up, and Away?

Catching up on Dow Theory...Yesterday we got a Dow Theory "buy" signal. Whether this is a bear market rally (likely) or the start of a new bull market (less likely), the short term indicators are that the market will go up. It is a reasonable time to add to a position in DIAs (hopefully with better results than I got in January).

Everyone seems to agree.
Richard Russell, Jack Schannep, and even Charles Allmon (who is a sage advisor but not a Dow Theorist) all say the market should now rise, though caution is warranted.

From a strict
charting point of view, however, the technicals are looking rather extended to me. The RSI has been around 60 since March 23 and the MACD is looking peaked out. So, I'm not sure there won't be some kind of at least mild correction to the down side soon. But, that's just me - what do I know. No more DIAs for me though.

I might buy more
gold, however. It is showing some weakness right now but the support is basically holding up. A good sign.

From a Dow Theory standpoint, the Dow Jones Industrial Average (
INDU) and the Dow Transportation Index (DJT) both reached new recent highs on April 17, closing at 8131.33 and 3094.90 respectively. But, both averages immediately dropped significantly the next day, so these became the new targets for a bull confirmation.

On April 23 the Transports bettered their previous high, closing at 3108.84. DJT continued to rise the next day, closing at 3137.76. But, the Dow itself did not "confirm" the rising Transports. Ideally, in Dow Theory, both averages would go to new highs to signal a buy.

Meanwhile, INDU stubbornly refused to go to a new high...until yesterday's close at 8185.73. Theoretically, this should mean all is well for now in the markets. They should continue to rise. However, there is a bit of caution in the air. It is not a perfect scenario because four trading sessions passed in a non-confirmation mode. Plus the Transports traded yesterday lower not higher than their most recent high. Still, there is more reason for optimism than we have had at any time since the Great Recession began.

This April was the best month for the market since 2000.

To date, both averages represent a rather rapid and powerful rise of about 20% from the lowest points of the bear market in March. This is not without historical precedent, as I indicated in an earlier post. What is unique about this rally is that (so far) it hasn't corrected, leading many financial gurus to contend that the bear is over and a new bull market has emerged. This would be a rather remarkable historical occurrence, however.

Then again, everything about the economy in the last two years seems to have been historic.

I have written about how historically bear markets last at least a third as long as the preceding bull market. Since the previous bull market lasted 25 years the bear should last much longer than 17 months.

Still, arguing with the markets is like arguing balls and strikes with an umpire. The market does what it does and no one can control it. It is a great part of our functional society - human beings all wrapped up in a mega-system that controls THEM, not the other way around.

Hopefully, we're going up for awhile and - just maybe - the worst of this Great Recession is behind us.

That's cool with me. Let's make money. "Money makes der Welt go 'round", eh?

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