For someone who uses Dow Theory every single day, it’s not something that I write about much. I may indirectly reference certain tenets all the time, but rarely do I write specifically about the 130 year old Dow Theory. I think I pretty much laid it all out earlier this year in my post: 5 Things Every Investor Should Know About Dow Theory. The simple minded choose to stick to the Dow Jones Transportation Average and Dow Jones Industrial Average either confirming each other or diverging from one another. And while this may in fact be a one of Charles Dow’s tenets (although they were Railroads back then, not the Transports we have today), it does not even make it into my top 5 most important tenets. [Read more…]
Last week I shared with you guys a “Mystery Chart” without any labels on it. The point of this exercise is to eliminate any biases and focus only on facts. The only truth in the market that we can count on is price. Sell side analysts are going extinct because they offer little value, the media is often either wrong or lying to you, the same can be said about C-level executives, and the list goes on and on. None of these people are reliable. This is why the only thing we can count on is price. It’s just math. So we prefer to focus on that and ignore the rest of the noise.
Today we’re looking at a rare development in economically sensitive assets that I think have much broader implications for stocks and commodities moving forward: [Read more…]
In this week’s members-only letter we discuss the following topics:
- What Is The Bullish Case For U.S. Stocks
- Why I Am Still Leaning Towards The Bearish Side For Stocks
- My Favorite Short In U.S. Stocks
- Why We Want To Be Long Volatility
- What The Relative Strength In U.S. Banks Means To Me?
- Why Commodities Have Been The Best Place In The World
- What If The U.S. Dollar Rallies?
- What Do We Make Of The Historic Extreme Bullish Sentiment In Bonds?
We’ve just witnessed one of the most epic rallies in the stock market that we’ve seen in a long time. Remember, this has been dominated by global indexes, particularly Emerging Markets, not U.S. Stocks. We could not be happier to see this rally progress so well as we’ve been pounding the table to be long since late January. By mid-February, the U.S. and other developed markets put in their bottoms and started to play catch up to the rest of the world. But the underperformance of the U.S. has continued anyway.
Today’s Chart Of The Week represents what could potentially be the start of a major structural improvement for U.S. Stocks: [Read more…]
We’ve been pretty neutral the majority of the U.S. Stock Market indexes over the past couple of weeks since they first starting hitting our upside targets. Some of them, like the Nasdaq100 and Mid-cap400 had yet to reach out upside objectives, but we are approaching those now. I will argue, though, that the developments we’ve seen are constructive, both in price behavior and in the breadth itself.
Here is what I think we need to keep in mind with each of the major Indexes. We’re using only bar charts today in order to put extra emphasis on price for this particular exercise: [Read more…]
Thursday morning I was on the Benzinga morning radio show chatting with the guys about the S&P500 as well as some individual stocks and commodities. I really enjoy doing this show because they like to focus on the market and price behavior, as do I. The sector rotation we’re seeing makes me a lot more bullish than what the frustrating sideways action in the major averages might indicate on the surface.
Here is the audio in full:
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Tags: $SPY $DJIA $TNX $TLT $ZB_F $CL_F $GS $LL $TRV $DJT $IYT $XAL $AAL $DAL $JETS
One of the recent developments that we’ve been noticing is the outperformance out of the Dow Jones Transportation Average over the past week or so. We’ve been hearing all year about the Dow Transports struggling compared to some of the other major stock market averages. At the beginning of the month, the Dow Jones Industrial Average was up over 2.5% while the Transports were negative Year-to-date. Where markets close at the end of the year is a number completely arbitrary, so discussing year-to-date returns is one of the more useless exercises performed by market participants and market watchers. But regardless, the headlines were mostly about the Transports underperforming. Not only has this flipped over the past week or so, but bigger picture all the Transports do is outperform. Since 2012, it’s not the DJ Industrials that are leading, it’s the DJ Transports.
Since the Fall of 2012, the Dow Jones Transportation Average has more than doubled the performance of its Industrial counterpart. Here is a comparison chart showing the Transports up over 80% during that time while the Industrials couldn’t return half that:
More importantly, in my opinion, the ratio between the two has been trending beautifully within a very well-defined uptrend channel. The year-to-date headlines don’t tell the whole story. It’s not sexy. But all we’ve seen this year is a tiny correction in the ratio towards the lower of the two parallel trendlines. A buying opportunity is what it looks like from here:
So don’t worry so much about arbitrary year-to-date numbers. They really mean absolutely nothing when it comes to supply and demand dynamics. I think this outperformance out of the Transports should continue. I don’t like to fight the primary trend, that’s Dow Theory. Charlie Dow knew what he was talking about 120 years ago. Who are we to dismiss him?
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Tags: $DJIA $INDU $DIA $YM_F $TRAN $IYT $DJT $DJI
Coming into 2015, the major US Stock Market Indexes like the Dow Industrial Average and S&P500 were not areas where we wanted to be putting new money to work. Not only did we have failed breakouts around the holidays which is always a bad sign, but I felt we needed some consolidation, or digestion, of the gains over the past few years. Markets can consolidate gains in one of two ways, either with a downside correction in price or sideways through time. The latter is obviously the healthier version of the two.
Today I want to take a look at a few of the Major US Stock Market Indexes to show how these averages have been consolidating over the past several months. The first one is the S&P500 representing 500 of the largest corporations in America. Look at price trading within these two converging trendlines and essentially at the same price that it was in early November:
The next chart is the Dow Jones Industrial Average which includes 30 humongous US Stocks. Notice how similar this pattern is to the S&P500. Prices are right where they were in early November and trading within this symmetrical triangle looking formation defined by two converging trendlines:
The Nasdaq100 is more of a tech heavy index containing 100 of the largest companies that trade on the Nasdaq. In this case, we don’t have a symmetrical triangle, but more of a sideways range. Notice once again how prices are right where they were in early November:
And finally here is the Dow Jones Transportation Average. This index contains 20 big market-cap stocks related to transportation including airlines, railroads, shipping companies, etc. One more time we can see prices near where they were in early November and trading within a 3 month range defined by two somewhat parallel trendlines:
I think the main takeaway here from these 4 large-cap Indexes is that we are stuck in a range. Although it might seem frustrating to some short-term traders, this is not necessarily a bad thing bigger picture. Now what we want to see are breakouts above the upper trendlines in each of these charts. Until then, I don’t see any reason to be involved in the major averages.
To me, it’s important to look at each of the averages and compare them to one another. Are they telling different stories? Or are they telling us the same thing? There is no Holy Grail when it comes to the market. It’s more of a weight-of-the-evidence kind of thing. And right now, the weight-of-the-evidence suggests that tactically there are better places to be that in the major US Stock Market Indexes. Until we break above the upper end of those ranges, I would expect more choppiness. Who needs that?
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Tags: $DJIA $DIA $SPY $SPX $ES_F $YM_F $NDX $QQQ $NQ_F $TRAN $DJT $DJI $IYT