Another Good Day for the Bulls

After a number of short-term victories for the bulls over the past week, the Dow Industrials and Dow Transports scored new all-time highs together, triggering a Dow Theory confirmation or buy signal on Wednesday. While the Dow Industrials were the lone major stock market index to see fresh highs so far, I expect the S&P 500 to follow suit shortly. The S&P 400 and Russell 2000 should not be far behind which would add even more credence to my forecast of limited downside. However, I still do not believe that stocks are ready just yet to blast off on another leg higher. As the NASDAQ 100 repairs itself, I think the stock market remains in a trading range which will eventually be fully resolved to the upside.

Participation in the rally remains very, very broad and strong no matter what you hear differently from the pundits. These are the same pundits who were negative after BREXIT and the election last year and continue to scream about a major decline or bear market starting. The chart below says it all. The NYSE A/D Line is once again at all-time highs. While it’s not 100% perfect, this indicator rarely looks so strong as a bull market is ending. When I say “rarely”, I believe it has only failed once in the modern era. In any case, with high yield bonds stepping up again and the other evidence I continue to point out, buying weakness is the correct strategy until proven otherwise.

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Dow Theory Says to BUY

After staving off early morning selling on Tuesday, the bulls followed through with a nice little day on Wednesday. As I have discussed, the NASDAQ 100 continues to bounce back and resume leadership. That’s an intermediate-term positive, especially if the index does not lead on the downside during the next pullback.

While the Dow was the only major index to score an all-time high on Wednesday, the Dow Theory crowd will point to the transports also hitting an all-time high. That’s considered a Dow Theory confirmation and portends higher prices ahead. In that regard, the bull market is alive and well.

Besides the good sector leadership, high yield bonds also seem to have ended their pullback. While they are not yet at new highs, their behavior is constructive.

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Dow Theory Trend Change… Again

Last week, I wrote an article explaining how traditional Dow Theory worked, at least the way I learned that it worked. In that piece, Dow Theory confirmed a trend change to the negative side. While describing what transpired to give this warning, I also wrote that my own projections for the Dow were to the 18,000 level and I would be surprised if stocks didn’t see all-time  highs.

After the Japanese caught the markets off guard with their own shock and awe on Friday, we have yet another Dow Theory Trend Change and in doing so, wiped away any early warning sign that Dow Theory was giving. Both the Dow Jones Industrials and Transports are at new highs, a late confirmation for the bulls, but a confirmation nonetheless. This sudden shift from one side to the other and back again is often referred to as a whipsaw and definitely exposes one of the weaknesses in Dow Theory.

Below you can see what I tried to depict above in chart form. Stocks have run very hard, very fast and are certainly due for a breather. But as I have said for several years, the bull market remains alive. Any and all pullbacks are buying opportunities until proven otherwise.

Tomorrow, be on the lookout for a special election post!

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