Market Checkup: Dow Theory Perspective

The market sold off heavily on Monday (6/22) and remain relatively flat on Tuesday (6/23). Regardless of what the headline news show, the market almost always discount the future.

The chart below shows the Dow Jones Industrial Average moving above its previous high. This is one part of the puzzle. Another part lies in the Transport Average. As long as both can move above its previous high, we are in the money.

The chart below is Dow Jones Transport Average. The Transport cannot move above its previous in May and thus leaving us with a non-confirmation of the bull market.

I expect the market to test the March low. Only time can tell if the market can hold that level. My personal opinion is that it will, but the market has proven me wrong many times. The strategy is then to build up as much cash as possible. When market approach the March level, be prepared to buy up quality name which I will provide on my site.

For those contributing to 401(k) and do not invest on your own, here is what I would advice. Lighten your contribution as the market move up (i.e. from 10% to 6%). Contribute more when market decline (i.e. from 6% to 10%). This is the most simple buy low sell high strategy.

Because the Dow Theory have proven to be the best market indicator that I know, failure to acknowledge this theory may be costly.

Charts and dividends are great. Unlike earnings, companies can't revise charts and dividend. Every minute that passed, a chart formation becomes historical and cannot be changed. Once are dividends are paid, a company cannot ask you to give back the money. On the opposite end, earning can be revise up or down. More often than not, they are revised down. This is why I favor charts and dividends.

Art

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