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.

Strategies & Market Trends : Dow 4000! -- Ignore unavailable to you. Want to Upgrade?

To: Brinks who wrote (19)	8/17/1998 7:30:00 PM
From: Brinks	Read Replies (1) \| Respond to of 140

Dow Theory believers see dark days ahead By JERRY HEASTER - Columnist Date: 08/15/98 22:15 While an emerging Wall Street consensus holds it will take a massive sell-off before the stock market can regain the high ground of last month's record highs, that day may be further away than many on Main Street appreciate. A fairly important but relatively unheralded development took place recently that portends a prolonged period of sluggishness, if not sustained bear market decline. The event was the Dow Theory's bearish turn for the first time in more than seven years. Although Dow Theory is viewed as a quaint artifact in some circles, its devotees contend that investors ignore it at their own peril. When Dow Theory Forecasts recently alerted its clients of the bearish turn, it noted that the Hulbert Financial Digest rates its market-timing performance of the last 15 years second best of all the advisory newsletters monitored by Hulbert. Dow Theory is a technical analysis tool with a 100-year-old forecasting record that has allowed its followers to avoid the worst of the most devastating bear markets of the 20th century. Its origins derive from the belief that the Dow Jones transportation stocks must validate the performance of the Dow Jones industrials. While sophisticates claim this approach is outmoded, Dow theorists respond by pointing out that today's transportation average companies are still highly sensitive to variables that move the market -- interest rates, labor costs, energy prices and consumer confidence. Dow Theory signaled its latest warning sign recently, Forecasts said, when Dow Jones industrial average of 30 blue-chip stocks slipped under its June low of 8,628. From this bottom, the industrials and Dow Jones transportation average rallied in tandem for more than a month. Only the industrials, however, made a new high, and the transportation average's failure to do likewise "represented a classic nonconfirmation." To make things worse, the transport average's retreat brought it below its June low of 3,259 for another significant development, according to Dow Theory. The transports' new lows reversed a three-year trend of higher highs and higher lows. This development didn't happen in a vacuum, either. The broader market also has been flashing yellow as the breadth of its advance narrowed. The Big Board's advance-decline line recently hit a nine-month low, Dow Theory Forecasts noted, while the average New York Stock Exchange stock is trading 25 percent below its 52-week high. This sort of deterioration, in fact, has extended far beyond the big-capitalization stocks, which Market Logic recently discussed in the context of the Russell 2000 index's decline. This is significant because its 2,000 stocks are those of middle-size and small-capitalization companies held by many individual investors and equity mutual funds. Moreover, as Market Logic observed, "a cardinal rule of technical analysis is that a disparity in which the broad mass of stocks is weaker than the blue chips is more often than not followed be weakness across the board." In other words, this market has a whole lot more going against it than many casual observers have noticed just from following the Dow industrials and the S&P 500. Thus, the gains posted through mid-July by the most popular averages were masking market malaise that has been developing over a prolonged period but has been largely overlooked.