Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (9407)	10/19/1999 5:48:00 PM
From: Allan Harris	Respond to of 15132

*From Long Waves* Forum** csf.colorado.edu Archaic Theory by Peter Eliades 19 October 1999 19:53 UTC -------------------------------------------------------------------------------- This will be just a fun post for me. It has little to do with how I analyze markets, but it has a hell of a lot to do with the current psyche of investors and money managers. Many analysts pooh-pooh the Dow theory and call it outdated and old-fashioned, I reluctantly admit I felt the same way myself for a long part of my career. It was always late in giving its signals and its keeper of the flame, Richard Russell, not only hadn't called a market turn in ages, he didn't seem to be up-to-date on any of his technical indicators, and the only special bulletin I saw him send out over the past 15 years was sent out as a sell signal right at the bottom in September 1985. Remember the story about the kid who said he was amazed how smart his dad got between when the kid was 15 years old and when he was 25. Well, it's the same with Richard Russell and Dow Theory with me. I'm amazed at how smart both Richard Russell and Dow Theory have gotten since I first knew them long ago. Perhaps it would do anyone who considers himself or herself a technician well to study Dow Theory. I was fortunate to have a subscriber send me the classic tome The Dow Theory by Robert Rhea, whom Russell has praised copiously over the past few decades. It is a wonderful book full of stock market wisdom from a past master. All of the above is simply a prelude to a simple thought. According to at least one of the most important technical tenets, the market is now in a primary bear market. That's what Dow Theory says. It does not tell you how long it will last or how far down it will go, but it does tell you we are in a primary bear market. There is another simplistic technical tool, a simple 200 day moving average. I repeat a warning I gave recently about the theory of analysis using intermediate to long term moving averages. The crossing above or below the moving average does not in itself signal a market change of trend. Equally as important is the direction of the MA. For example, a decline below a rising 200 day MA is much more often than not a buy signal rather than a sell signal. If the MA has flattened out or, worse yet, turned down, then a move below the MA or above the MA is a sell signal. In other words, the slope of the MA is more important than a crossing of the MA. On Thursday of last week, the 200 day MA on the NY Composite Index turned down i.e. the price that day was lower than the price 200 market days ago. Put that together with the Dow Theory sell signal given September 23, and you should have some very basic technical knowledge. Does this preclude a move to new highs? No. Does it tell us how far down there is to go? No. But it does tell us that according to the oldest technical theory of which we are aware, we are in a confirmed primary bear market. All the BS from wrong way Corrigan, who has called for a blow-off all year long, is huffing and puffing from someone who seems to have established a reputation within the group for one market call over a year ago and made nothing but mistakes ever since. But the most important lesson of all is a lesson of the psyche, the entity that rules stock market moves more than any other. There is no mention made in the media about the Dow Theory sell signal ushering in a primary bear market. All the talk on CNBC centers around whether we have seen the bottom already or will have to wait another week or two for the bottom. Think about it. The very thought that we might not see the bottom next week or next month or next year does not even enter anyone's mind. It would be patently ridiculous to even suggest it. If you're a bear now (not after the next blow-off), you have to like that fact an awful lot. That we are now in a bear market is virtually inconceivable to everyone except the oldest technical theory of them all. The fact that the signal has been given at arguably the most overvalued stock price levels in history should add to its potential significance. Happy trading everyone! Peter Eliades Stockmarket Cycles