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Mark Hulbert
March 18, 2011, 12:01 a.m. EDT
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Gold's strange response to Japan
First Take "
Decoding N.Y. Times's paid content plan
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” It may seem odd to turn to the Dow Theory for an assessment of the stock market's current prospects.
After all, it was created a century ago, well before nuclear power plants even existed "” when fears of a nuclear meltdown were beyond anyone's imagination.
/quotes/comstock/10w!i:dji/delayed DJIA 11,775, +161.29, +1.39% /quotes/comstock/10w!i:djt DJT 5,019, +69.24, +1.40%
Still, in one form or another, the Dow Theory remains one of the more widely followed stock market timing systems of the modern era. And in the hands of at least one of the advisers whose performance I regularly monitor, it is one of the best performing market timing systems of the last decade.
To best appreciate what the Dow Theory is telling us, a bit of background is helpful. According to the theory, a sell signal is triggered only when three conditions are met:
Both the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 11,775, +161.29, +1.39%) and the Dow Jones Transportation Average /quotes/comstock/10w!i:djt (DJT 5,019, +69.24, +1.40%) undergo a significant correction from joint new highs.
In their subsequent rally attempts following that correction, either one or both of the Averages fail to rise above their pre-correction highs.
Both Averages then drop below their respective correction lows.
Where are we in this three-step schema?
I turn first to Jack Schannep, editor of TheDowTheory.com and the Schannep Timing Indicator, whose interpretation of the Dow Theory has been the most successful in recent years among the three investment services I monitor who base their market timing on the Dow Theory.
Schannep in essence believes that we are still within the throes of Step No. 1. In fact, on his interpretation, attention doesn't shift to step No. 2 until the market stages a 3% rally "” and no rally since the market's mid-February high has come even close. Even with Thursday's strong rally, for example, the Dow is just 1.3% above its correction low.
On the assumption that a Dow theory signal remains in effect until reversed, therefore, Schannep remains solidly in the bullish camp.
The two other Dow Theory-oriented advisers I monitor are also bullish on the stock market. One of them is Richard Moroney, editor of Dow Theory Forecasts. He believes that a Dow Theory sell signal, even if one were to occur, is a long way off.
In fact, Moroney views the market's recent correction as not unexpected, given the market's recent strength: "Even a pullback below 11,000 ... would not be surprising considering the market's advance since August."
The final Dow Theorist I monitor is Richard Russell, editor of Dow Theory Letters. Though his recent comments don't fit neatly into the three-step schema mentioned earlier in this column, Russell says he is impressed by the Dow transports' relative strength. During Wednesday's huge down day, for example, the transports were able to avoid dropping significantly below their March 1 lows "” unlike the Dow industrials.
In Russell's mind, this amounts to what is known as a Dow Theory non-confirmation, with bullish implications.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Add Comment › · Recommend (1) · Post: Alert Email Print More Mark Hulbert March 16, 2011 Gold's strange response to Japan March 15, 2011 Fear grows "” a contrarian good sign March 11, 2011 March Madness and your portfolio March 9, 2011 How bull market stacks up against history March 8, 2011 Deflation worries receding fast Explore related topics Dow Jones Industrial Average Dow Jones Transportation Average Comments Screener About Mark HulbertMark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.
First Take Decoding N.Y. Times's paid content planThe New York Times is taking another crack at an online pricing plan, writes Jon Friedman.
12:38 p.m. March 17, 2011
Most Popular Most readMost commented Top 10 TV shows that lost lead actors, in pictures Japan set to restore power at reactors What's next for commodities with Japan in crisis Dollar surges vs. yen after G-7 statement Old market timing theory, modern insight The best laid plans ... U.S. stocks rebound as focus shifts from Japan U.N. backs no-fly zone, strikes in Libya U.S. futures point to gains on Wall Street Japan races to cool reactors; U.S. warns on threat Find a Broker Partner Center » MktwHulbert's Latest Tweets"Mark Hulbert: Old market timing theory, modern insight http://on.mktw.net/eWkCsh" 11:48 p.m. EDT, March 17, 2011 from MktwHulbert
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"Mark Hulbert: Fear grows "” a contrarian good sign http://on.mktw.net/hr9tVL" 2:02 a.m. EDT, March 15, 2011 from MktwHulbert
"Mark Hulbert: March Madness and your portfolio http://on.mktw.net/iksFk9" 12:23 a.m. EST, March 11, 2011 from MktwHulbert
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/quotes/comstock/10w!i:dji/delayed Dow Jones Industrial Average (DJIA) /marketstate/country/US The market is open5:32:37 am The market is closed5:32:37 am 11,775 Change +161.29 +1.39% Volume 182.26m Real time quotes var embeddedchart70394702Chart = new EmbeddedChart('#embeddedchart70394702', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:DJIA'); jQuery.data($('#embeddedchart70394702').get(0), 'embeddedchart', embeddedchart70394702Chart); Add to portfolio DJIA Find a Broker Create alert /quotes/comstock/10w!i:djt Dow Jones Transportation... (DJT) /marketstate/country/US The market is open5:32:37 am The market is closed5:32:37 am 5,019 Change +69.24 +1.40% Volume 20.06m Real time quotes var embeddedchart681836896Chart = new EmbeddedChart('#embeddedchart681836896', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:DJT'); jQuery.data($('#embeddedchart681836896').get(0), 'embeddedchart', embeddedchart681836896Chart); Add to portfolio DJT Find a Broker Create alert Featured Commentary » Next: Mark HulbertOn the Markets
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More BigCharts Virtual Stock Exchange WSJ Asia WSJ Europe WSJ Americas WSJ Chinese Financial News Online SEARCH 5:32 AM EDT March 18, 2011 /marketstate/country/us New York Closed /marketstate/country/uk London Open /marketstate/country/jp Tokyo Closed /marketstate/country/us /marketstate/country/uk /marketstate/country/jp View All Latest News /news/latest8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901755:25aEuropean central banks join G-7 yen intervention
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901745:21aTokyo stocks jump 2.7% to lead most of Asia
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901735:15aSiemens, BASF help lead Europe higher
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901724:59aTata Motors to raise prices on vehicles
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901714:50aBundesbank says participating in yen intervention
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901704:25aNew details released of EU bank stress tests
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901694:16aGeneral Mills to buy a 50% stake in Yoplait
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901684:10aEuropean stocks rise in early trading
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901674:08aBASF up 2% after ING intiates at buy
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901664:07aUnilever up 1% after upgrade at ING
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901654:06aWhat's next for commodities with Japan in crisis
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901634:04aSiemens up 1.9% after upgrade
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901624:03aGerman DAX 30 index up 0.9% at 6,716.51
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2901614:02aFrench CAC 40 index up 0.5% at 3,806.66
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Loading more headlines... dow /quotes/comstock/10w!i:dji/delayed 11,775 161.29 1.39% nasdaq /quotes/comstock/10y!i:comp 2,636 19.23 0.73% s&p 500 /quotes/comstock/21z!i1:inx 1,274 16.84 1.34% Kiosk 1242144000000 1273680000000MarketWatch Blogs
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BRETT ARENDS' ROI Stocks for panicky times Global equities have been roiled by events in Japan, but here are 10 stocks where you can still find good value. /conga/kiosk/commentary.html 134553 1266296400000 1266296400000First Take
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Politics and the nuclear path The political climate, not technology, will determine whether various nations stick with plans to expand nuclear power capabilities, experts say. " Disaster in Japan: Continuous updates 134654 1299235200000 1299510000000Video
Big guns aim at Amazon A look at the campaign by major retailers, such as Wal-Mart and Target, seeking to force Amazon to collect sales taxes. " How banks can learn from Apple 134616 1251748800000 1251748800000Disasters
Do earthquakes cluster? The megaquake-cluster theory sees San Francisco's calamity (left) as linked with others in 1906 and views Chile's and Japan's recent megaquakes as related. /conga/kiosk/wildcard1.html 134658 MarketWatch.com Site Index Topics Help Feedback Newsroom Roster Media Archive Premium Products Mobile Podcasts RSS MarketWatch on Facebook MarketWatch on Twitter Company InfoStill, in one form or another, the Dow Theory remains one of the more widely followed stock market timing systems of the modern era. And in the hands of at least one of the advisers whose performance I regularly monitor, it is one of the best performing market timing systems of the last decade.
To best appreciate what the Dow Theory is telling us, a bit of background is helpful. According to the theory, a sell signal is triggered only when three conditions are met:
Both the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 11,775, +161.29, +1.39%) and the Dow Jones Transportation Average /quotes/comstock/10w!i:djt (DJT 5,019, +69.24, +1.40%) undergo a significant correction from joint new highs.
In their subsequent rally attempts following that correction, either one or both of the Averages fail to rise above their pre-correction highs.
Both Averages then drop below their respective correction lows.
Where are we in this three-step schema?
I turn first to Jack Schannep, editor of TheDowTheory.com and the Schannep Timing Indicator, whose interpretation of the Dow Theory has been the most successful in recent years among the three investment services I monitor who base their market timing on the Dow Theory.
Schannep in essence believes that we are still within the throes of Step No. 1. In fact, on his interpretation, attention doesn't shift to step No. 2 until the market stages a 3% rally "” and no rally since the market's mid-February high has come even close. Even with Thursday's strong rally, for example, the Dow is just 1.3% above its correction low.
On the assumption that a Dow theory signal remains in effect until reversed, therefore, Schannep remains solidly in the bullish camp.
The two other Dow Theory-oriented advisers I monitor are also bullish on the stock market. One of them is Richard Moroney, editor of Dow Theory Forecasts. He believes that a Dow Theory sell signal, even if one were to occur, is a long way off.
In fact, Moroney views the market's recent correction as not unexpected, given the market's recent strength: "Even a pullback below 11,000 ... would not be surprising considering the market's advance since August."
The final Dow Theorist I monitor is Richard Russell, editor of Dow Theory Letters. Though his recent comments don't fit neatly into the three-step schema mentioned earlier in this column, Russell says he is impressed by the Dow transports' relative strength. During Wednesday's huge down day, for example, the transports were able to avoid dropping significantly below their March 1 lows "” unlike the Dow industrials.
In Russell's mind, this amounts to what is known as a Dow Theory non-confirmation, with bullish implications.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.
The New York Times is taking another crack at an online pricing plan, writes Jon Friedman.
12:38 p.m. March 17, 2011
"Mark Hulbert: Old market timing theory, modern insight http://on.mktw.net/eWkCsh" 11:48 p.m. EDT, March 17, 2011 from MktwHulbert
"Mark Hulbert: Gold's strange response to Japan http://on.mktw.net/hoBRwg" 11:07 p.m. EDT, March 15, 2011 from MktwHulbert
"Mark Hulbert: Fear grows "” a contrarian good sign http://on.mktw.net/hr9tVL" 2:02 a.m. EDT, March 15, 2011 from MktwHulbert
"Mark Hulbert: March Madness and your portfolio http://on.mktw.net/iksFk9" 12:23 a.m. EST, March 11, 2011 from MktwHulbert
"Mark Hulbert: How bull market stacks up against history http://on.mktw.net/gwR81j" 12:45 a.m. EST, March 9, 2011 from MktwHulbert
On the Markets
How now, Dow Theory?
Media Web
N.Y. Times: Sulzberger risks his legacy
No-Nonsense Investing
Japan's "random' events are no shock
Ethics Monitor
Nuclear power is nota safe option
Yen isn't a measure of Japan confidence
Read Full Article »