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.