Forbes Newsletter Watch
Nearly Out Of the Woods?
Peter Brimelow, 03.01.02,
10:40 AM ET
NEW YORK - Missy Sullivan's interview with Dow Theory
Forecasts' Richard Moroney was particularly well-timed because the very next
day the Dow Jones Industrial Average came within an ace of giving a new Dow Theory buy
signal. It reached 10,241 during the day's trading--just short of the critical level of
above 10,259.74 set in January. Then it fell back.
Moroney has said that a close above 10,259.74 will fulfill the
third and last of his conditions for a buy signal. The other two are a
"significant" rally off of a bear market bottom (defined as more than a couple
of percentage points and for more than just a week or two), followed by a correction; and
a rally that takes the DJIA and DJT to levels that surpass the highs set in the initial
rally. The DJT has already surpassed 2,830.2--its high on the previous rally.
The DJIA tried again on Thursday, but softened towards the end of
the day's trading. However, one strong day could easily break through to new high ground.
Nearly out of the woods? We've said before that the Dow Theory
has made a comeback in recent years, even receiving a certificate of vindication in a
study by two Yale finance professors. But disputes among Dow theorizers continue. Jack
Schannep of Schannep Timing Indicator believes he received a buy signal last November,
when the market resumed its rally off September's low. Though he acknowledges the
10,259.74 level, he thinks it is moot:
"Current Signal: buy on 11/8/01 at 9,587.52 After a move-up
of over 2,000 points it would be normal for a pullback of one-third to two-thirds over a
three-week to three-month period. That Dow Theory description of a 'secondary reaction'
may be what others are waiting for, followed by a move to above the January highs of
10,259.74 on the industrials and 2,830.20 on the transports, to come in with their own buy
signals. So far, the 32% pullback (641 points down from the 2,024 point up-move) over the
last three and one-half weeks is close to that criteria. Whether they will act on the
above or wait for new all-time highs just as they did in 1999, some 3,000 points higher
than our buy signal, is anyone's guess. If you know of someone subscribing to the other
Dow Theory newsletters I wish you would do them a favor and tell them about our
newsletter."
That's probably a snide reference to Richard Russell of
the long-established Dow Theory Letters. He has made it clear that he's not going
to turn bullish even if the DJIA eclipses 10,259.74. Russell has the unusual view that the
Dow Theory is first and foremost about values--price-to-earnings ratios, etc. Since
valuations remain even now at sky-high levels, he will remain bearish.
Moroney and Russell have superior timing records according to The
Hulbert Financial Digest; Schannep is not yet followed by the HFD. So, while a close
above 10259.74 might see the market out of the woods, it could still be within paw range
of an enterprising bear.
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& TheDowTheory.com
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