Once More on the Stock Market After Today's Action
To reiterate a reasonable view of the current action in the stock market, based particularly on Dow Theory: Recent August lows were breached by the Industrials and Transports. While all interpreters of Dow Theory don't agree on this, it seems that we need to watch the recovery from the lows (which again may or may not be in as of today's close; more could ensue before the lows are established). If both averages (Industrials and Transports) fail to break over September highs and turn down again, we can anticipate them breaching the low that has or will be established. If or when that happens, we would be more assured of a new bear market. Until then, we remain in a correction.
Why use Dow Theory and its focus on the Industrials and Transports? After all, there are other equally satisfying disciplines that could tip us off as to whether we are in a temporary correction or a bear market, one being the 200-day moving average of the Dow and/or the S&P. Well, for one thing, it's a fairly tried and true methodology for interpreting the action of the market. And while it's not perfect, particularly because it can be interpreted differently by different practitioners, it provides a disciplined framework and such a framework helps to remove the emotions from decision-making, which (emotions) are the real enemy or good decision-making.
In any case, that's how we choose to see things after today's action: still in a correction, not a bear. And we might add that the Small Cap Index actually closed higher today - the same index that has served as a leading indicator of trouble on the downside for the larger stock averages. Will this higher close signal positive action in the future? I won't bother to offer an opinion here, except to remark that the action continues to be wild and emotional and we'd do best to keep our heads low while the bullets fly. If you're positioned appropriately given your long-term strategy, just watch and wait. That's about what I'm doing at the moment.
Why use Dow Theory and its focus on the Industrials and Transports? After all, there are other equally satisfying disciplines that could tip us off as to whether we are in a temporary correction or a bear market, one being the 200-day moving average of the Dow and/or the S&P. Well, for one thing, it's a fairly tried and true methodology for interpreting the action of the market. And while it's not perfect, particularly because it can be interpreted differently by different practitioners, it provides a disciplined framework and such a framework helps to remove the emotions from decision-making, which (emotions) are the real enemy or good decision-making.
In any case, that's how we choose to see things after today's action: still in a correction, not a bear. And we might add that the Small Cap Index actually closed higher today - the same index that has served as a leading indicator of trouble on the downside for the larger stock averages. Will this higher close signal positive action in the future? I won't bother to offer an opinion here, except to remark that the action continues to be wild and emotional and we'd do best to keep our heads low while the bullets fly. If you're positioned appropriately given your long-term strategy, just watch and wait. That's about what I'm doing at the moment.
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