Forbes Newsletter Watch
Dow Theory Divide
Peter Brimelow, 03.04.02,
3:09 PM ET
NEW YORK - "Jumbo, Watusi move to the upside today,"
said Dow Theory Letters' Richard Russell after March 1's explosive move.
"From a Dow Theory standpoint, the Dow broke out above its January 4 peak of
1,0259.73, and the move was confirmed by the Transports breaking above their own January 4
peak of 2,830.27."
It looks like the Dow Theory buy signal we were muttering about
in March 1's column (see "Nearly Out of
the Woods"). But Russell, the old Bull Moose of the Dow Theory, is still stomping
his hooves and snorting derisively. He's even speculating about market manipulation, an
idea he's flirted with before (see
"Methuselah Suspects
Market Manipulation") but backed off:
"Blow baby, blow. Looks like the pros want to bring back the
bubble. Can you blame them? ... Hey, Wall Street isn't a charity affair, it's a
business--and the business is distributing securities to the public. That's right, Wall
Street's business isn't collecting stocks and bonds, it's getting rid of them. Seriously,
this did look like a blow-off, but we'll only know that in retrospect. I keep thinking of
1966 to 1974, those mini-bull and mini-bear markets."
He means the Dow's repeated feints at 1,000 from 1966 to 1982,
which lured so many investors to their doom that Jim Dines of the Dines Letter named it
"The Graveyard in The Sky."
Russell's timing over the last 20 years has been excellent,
according to the Hulbert Financial Digest. His argument for not accepting this buy signal
is that the Dow Theory is also concerned about value--price/earnings ratios, etc.--which
by most measures isn't there right now. But there's also his five decades' experience.
Chillingly, his recommended exposure to equities now is a nice round 0%.
Richard Moroney of Dow Theory Forecasts said Feb. 28 he would go
up to 85% invested in stocks if the Dow got through 1,0259.73, and so that's what the
Hulbert Financial Digest's ruthless model portfolio system has done, although Moroney
won't comment again until today. The value of this system is clear when you look at
Moroney's obvious--and obfuscating--worries:
"Subscribers should remember that bull market signals are
not always the best time to buy. And while a bull market signal would indicate that the
majority money opinion is in the bullish camp, it would not imply that the market is
headed for a sustained and broad-based advance .... The fierce industry group rotation of
recent years seems likely to continue, and subscribers should be opportunistic in
deploying cash reserves. Still ..."
Still, Schannep Timing
Indicator upstart Jack Schannep's claim that there was actually a Dow Theory buy
signal in November seems to have been vindicated. Schannep hasn't updated as of March 3.
Maybe he's out celebrating.
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& TheDowTheory.com
