Russell, Schannep and Moroney examined.
If you follow this Dow Theory
blog, you know that I spotted a primary market Dow Theory signal on Nov 16. You
can read the details of such a signal here and here.
But
the Dow Theory is not math, and hence it is subject to interpretation, which
results in different “flavors." To get a basic idea about the different “Dow
Theory flavors," please click here.
Dow Theorist Richard Russell
has been bearish since time immemorial. He tends to be aligned with the secular
trend, and hence he’s had a bearish stance for a long time. When he was just
about to turn bullish, the declines suffered by the market two weeks ago made
him revert to a full bearish outlook. All in all: For Russell, the market is in
a primary bear market and the price advance witnessed from June 4 to Sept 14
was merely a secondary reaction within a primary bear market.
Richard Moroney is the editor
of the “Dow Theory Forecasts." Until now, he was bullish but now it seems
he is turning bearish. You can read more about his stance here.
However, it should be stressed
that the “Dow Theory Forecasts," unlike Russell or Schannep or this
blogger truly yours, is not exclusively focused on the Dow Theory. And you know
the saying: "Cobbler stick to your trade."
Schannep is unambiguously bearish.
He was bearish some days before I myself declared the existence of a primary
bear market. If you follow this Dow Theory blog assiduously you know that I
regard Schannep as a leading Dow Theorist. He’s a focused Dow Theorist, and his
market calls tend to be right more often than not. Or to put it bluntly: Those following him have made money and you know the saying (again a saying): "Money walks, BS talks"
Therefore, there seems to be
unanimity among Dow Theory practitioners. However, I’d say that this unanimity
is more the result of chance than real agreement as to the tools and principles
applied, since time frames and interpretation of the Dow Theory differ substantially
among them.
Of course, if we take the
secular view, I agree with Russell. The S&P is still below the level it
reached in 1999. This is clearly a secular bear market for me. However, between
1999 and 2012 we have had several cyclical bull and bear markets and some of these
cyclical bulls (spotted by Schannep and even Russell in some instances) were
profitable for investors.
If we focus on a somewhat
shorter time frame (i.e. 1 year), I also agree we are now in a primary bear
market. So we are undergoing a cyclical bear market within a secular bear
market. So the agreement between Dow Theorists must be nuanced. Now we all agree
as to the using the word “bear”. However, some Dow Theorists have reached this
conclusion from a secular time frame whereas others have applied a shorter time
frame.
What should the investor do? As
I have written before, I personally tend to ignore the secular trend and, like
Schannep, I feel comfortable spotting cyclical bull and bear markets. This
implies a time frame of ca. 1-2 years, which is long term enough not to be a
short term trader but short term enough not to be a “buy and hope," sorry,
“buy and hold” investor. The secular trend is important, though: It helps me determine the total amount of capital to be committed to stocks. In a secular bull market like the nineties, I'd feel comfortable with an 80% allocation to stocks. Under a secular bear market, I'd decrease my commitment even under a cyclical bull market. Capital allocation and portfolio composition is the subject for a future post on this Dow Theory blog.
Have a wonderful weekend.
The Dow Theorist.
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