Laughing As You Sink

This video clip is from ABC News Australia, recorded in mid-May.

The Long and Winding Road... To "Oh Happy Day"

I've been reading Tim Wood's articles on Financial Sense for a few years. Without a doubt, he can be described as the most devoted Dow Theory technician I know of. Here is a link for more description of Dow Theory as a follow up to the earlier post on it, titled Dow Theory Basics. It is also his current opinion of the stock market trend using his version of Dow Theory analysis. He sometimes includes a bothersome list of financial events that he discovered in a book. This list is a sort of road to hell and it is his belief that we will visit every little point described by the book author. I have no such belief and I am only curious about Dow Theory, but I do want to keep the list in front of me, just because it challenges me to keep my mind open to ideas. It's a way for me to manage the influence of cognitive dissonance. There is some credibility to the idea of events happening in a sequence that can be predicted, but I don't think it can be predicted out further than a few years and have any probability of occurring as predicted. IMHO, the list in Tim Wood's article is going to need ten years to play out. (He mentions a K-wave winter which is described as a long period of global deflation.) I have added my POV in bold type for each point. Anybody else? Make a copy of the list and send me your thoughts in a comment or an eMail. Don't miss the big ending!

Bulls and Bears Need a Plan

If there is anything certain about what direction the market has moved since late April, it is that it is unpredictable and moving fast. In that environment, we need to be comfortable about our allocations measured against the market risk we are comfortable carrying. The quickness and degree of change we are seeing makes it clear that the time to move on strategic allocation decisions is whenever you can, on any positive bounce. John Hussman has a great way of describing his view of portfolio management that addresses the concept of risk management and evaluating your plan. His article is titled "Don't Mess With Aunt Minnie".

As you'll read, he is not making a bull or bear declaration. Instead, he is pointing out a big technical warning signal (see the graph below) to be aware of, and suggesting there is still elevated risk of fast downside moves from day to day for the unquantified near term. Here is a bit of his article...

BEA News: GDP and Corporate Profits, 1st Qtr 2010 (second estimate)

The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.0 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "second" estimate released by the Bureau of Economic Analysis.
The full text of the release on BEA's Web site can be found at http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm. 

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U.S. Bureau of Economic Analysis · 1441 L Street NW · Washington DC 20230 · 202-606-9900

Dow Theory Basics

In the world of technical analysis, there is a method called Dow Theory that pops up frequently. I know nothing about it and do not have a desire to become educated in it. Today I found a little insight when I came across an article on MarketWatch, written by Mark Hulbert, that describes it from the perspective of three different practitioners. Here is what it says...

According to two of the three Dow Theorists I monitor, the system is still on a buy signal. If they're right, then the Dow Theory is among the very last of technical trading systems still in this market -- since, especially after Thursday's market action, most of the others are now in cash. ( Read commentary on Thursday's breaking of major support levels.)
You might wonder why there is any doubt as to whether a sell signal has been triggered. The reason is that the Dow Theory's creator -- William Peter Hamilton, who introduced the approach in numerous editorials over the first three decades of the last century in The Wall Street Journal -- never codified his thoughts in a set of complete and precise rules.