September 22, 2012
Weekly Market Outlook
By Keith Schneider
While the presidential election drones on and the polarization between donkeys and elephants intensifies, the rally on Wall Street paused this week. Notably absent from participating in the market’s move to new highs are transportation and semiconductors. The Transportation Sector (IYT), a key barometer of economic activity, is stuck. Semi- trucks, some loaded with semi-conductors are going nowhere fast. What does this foretell? Maybe resurrecting a theoretical relic of the past might shed light on the future.
Charles Dow, a founder of the Wall Street Journal, wrote hundreds of articles about market timing and is largely responsible for what’s now known as Dow Theory. It’s a model that some old time traders still stubbornly use. One of its core premises is that the Transportation averages must confirm the Dow Industrials in order for the stock market to be in a primary trend, either bullish or bearish. Without this confirmation, moves are either short lived or limited in strength. With the Dow Industrials (DIA) and other broad indexes sprinting to new highs on the heels of QE3, the Dow Transports (IYT) broke down this week, crashing thru some key moving averages, causing us to bring out the yellow caution flag. Maybe it’s different this time, and we live in an iPhone economy where moving physical goods and services are rendered obsolete. Just beam everything to the cloud; but I don’t think so.
The flood of new money can continue to push stock prices to new highs, but without robust actual commerce happening, one must watch the technicals and let the price action dictate when to bail on this liquidity based rally. In these times, it’s even more important to remind ourselves that, "Markets can stay irrational longer than you can stay solvent." Aptly stated by Keynes after being wiped out in one of his early speculations.
Please watch this week’s video as we look at critical price levels in several key markets...
And be sure to subscribe to our YouTube channel here and get all of our free videos as soon as they’re released!
Every week you'll gain actionable insight with:
