DOWN Jones Averages

The DOWN Jones Average fell @ 3% last week, the NAZ 6% - that is the Sell signal that PNFers A.W.Cohen, Michael Burke and Tom Dorsey use ( 2-pt.box; 3-box reversal) for their benchmark. If it is a Wall of Worry that the Bulls need it is definitely there: imminent terrorism with the Republican Convention, Olympics, and the Election on the horizon. The Economy is at least taking a hiatus. Seasonally weak Sept. and Oct. loom just ahead, and the financial pages still look like the police blotter. Bulls can also point to a 17-year high in the Public/Specialist shorting ratio at 2.46; a recent record of 3.18% Dividend Yield on the DJIA (now tax-enhanced); and an IBD put/call ratio of 1.03 (83 on the CBOE Equity ratio). More importantly, the AAII Bull/Bear ratio CROSSED, with 31 vs. 33.8 numbers showing excess pessimism.
Using a timing strategy of 3 important market forces: Trend, Valuation and Sentiment, the 7-month Trading Range has finally been violated to the downside, which, unless it is a fakeout (Wyckoff Spring), would find no appreciable Support until the 9300s or 9000. The NAZ looks even weaker. Valuation is settling into the neutral range of high teens p/es ( a pendulum-swing washout first would be more traditional), and the Fed model of 10-year Treasuries actually points to undervalued stocks. Sentiment is mostly in the neutral range with only the few (above) extremes. Tricky times - it is best to use filters ( 3-day closes) for confirmations, and stops to manage the Volatility.

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: brentleonard.com for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Amazon.com: Zero (IN)Tolerance

Subscribe in a reader

DOWN Jones Averages