Should Dow Theorists panic?
Zero Hedge reports that Steen Jakobsen, Chief Investment Officer of Saxo Bank, believes that in the second half of 2014 stocks are likely to correct 30%. Such a prediction is based on fundamental reasons, of course.
So what should be done?
My answer: Nothing.
We should do nothing because as Dow Theorists we know:
a) Fundamentals, or as legendary trader Paul Tudor Jones puts it, “funny-mentals” more often than not are wrong. What if, the Fed contrary to prevailing opinion decides to boost QE? What if the dollar’s value is cut in half (thereby most likely doubling the price of stocks)? What if he is simply wrong? There are so many factors in the equation than I have learned not to be impressed by fundamentally-based predictions of stock prices.
b) Even if Mr. Jakobsen is right, this Dow Theory blog has repeatedly proven that the Dow Theory has the uncanny ability to get us near enough from the top, so that no life-threatening losses are endured. More to the point, my studies show that the average loss from the top amounts to ca. 10%. Even under extreme conditions (let’s say the 1987 crash) the Dow Theory managed to yield only -13.49% whereas “buy and hold” investors lost a whopping -36.13% in a couple of days. And those following Schannep’s flavor lost even less. In April 2014, Richard Russell, of “TheDow Theory Letters”, aired dire warnings for stocks, in my post “The mother of bear markets and the Dow Theory” I have hard data that put such dire predictions into their proper context.
c) All in all, the adage “don’t fight the trend” is our best companion. Of course, this entails the ability to spot the trend, and more importantly, a change thereof. Here lies the rub. And this is what I attempt to do on this Dow Theory blog.
US stocks, gold, silver and their miners.
Another indistinct day. Neither the primary nor the secondary trend has changed.
So arm with patience, and if long stocks stick with the prevailing trend. Succesful investing, as you can see, is boring. No thrill, no “funny-mentals”, no ego-filled pontificating about the Fed and the economy.
The Dow Theorist