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Influential investment newsletter ranker and market analyst Mark Hulbert says the Dow Theory just flashed a Sell Signal as Thursday’s swooning stock markets closed.
Two of three conditions for a “sell” signal were already in place before this week’s meltdown: the Dow Jones Industrial Average and the Dow Jones Transportation Average both must experience a significant correction from their joint new highs; then in any significant rally attempt following that correction, one or both Dow averages must fail to rise above their pre-correction highs. As Hulbert notes, the first two conditions were met earlier this year: after sharp declines in January, the Dow Transports were not able to join the Dow Industrials in rising to new highs.
The third condition is that both averages must then drop below their respective correction lows. Hulbert says the “third and final hurdle of a Dow Theory ‘sell’ signal was generated at Thursday’s close when it broke under the low identified in step 1, which was 17,164.95.”
However, Hulbert says not all followers of the Dow Theory are throwing in the towel just yet, at least until the action in the broader S&P500 index confirms the negative action of the far narrower Dow indexes. Hulbert says Jack Schannep, editor of TheDowTheory.com, “acknowledges the original version of the Dow Theory has indeed emitted a ‘sell’ signal” but Schanne’s modified theory that focuses on the S&P500 as well as the Dow averages won’t generate a “Sell” signal until the S&P 500 closes below its January closing level of 1992.67. Even after Thursday’s carnage, the S&P500 was still 2.2% above its January low. Something to watch in Friday’s action: if that occurs, you can expect some pretty gruesome reading in this weekend’s financial pages.
It’s probably a good time to talk to your financial advisor but before taking drastic action of any nature, you might want to go back and read Steve Lowrie’s Hub posts that began each of the last three weeks, such as Stop reacting to Market Noise or Stop feeding on Junk Media.
The commodities sell-off
About the only thing that wasn’t headed south this week is gold, which has been in the doldrums for ages, along with oil and most other commodities. This week’s The Economist has a good summary of the dire situation of the commodities market: The Sell-off in Commodities: Goodbye to all that. It warns “the latest leg down in crude prices may not yet have run its course.”
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