Saturday, June 6, 2015

Dow Theory Special Issue: On the deceptiveness of trying to gauge value versus cold hard technical action

Now it could be that stocks are not so overvalued after all.

This article on Ritholz blog “The Big Picture” seems to suggest that if we adjust for current inflation valuations are not expensive at all. So, all the chatter of overvaluation notwithstanding, it could be that there is not so much secular headwind for stocks after all.

What’s my take on this? I don’t know. I just wanted to show you that determining values is not an easy feat. It is highly elusive, and hence, as I have repeatedly written on this Dow Theory blog, I rather prefer to focus on spotting primary trends (1—2 years duration) and completely ignore valuation issues. I prefer to let supply and demand, as interpreted by the Dow Theory, to guide me.

This brings me to another interesting article posted in “”, entitled "2 Things you don't know about the Dow Theory"

The article says that based on the (classical) Dow Theory, the benefit of the doubt belongs to the bulls, since the primary bull market signal remains in force and, in spite of recent weakness of the Transports, the Industrials have refused to violate their last recorded lows. So, as you can see no guessing, just cold hard facts. By the way, the articles also makes some interesting remarks concerning the elusive predictive value of the Transports.

This is why I am very skeptical as to trying to time the market based on valuation. To begin with, my yardstick to appraise value may be defective, or, at best non stationary, and hence all predictions are worth nothing. More about the unreliability of trying to appraise values, here

P.S.: Primary and secondary trends remain unchanged for stocks, GLD, SLV and their miners ETFs GDX and SIL. Here you find the last in-depth explanation as to the current state of trends:

As to US debt, the primary a primary bear market signal was signaled on June 3rd, 2015, and the primary trend for the EUR remains bullish which tends to confirm the bearishness of US debt. Here you have the details:

The Dow Theorist

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