The call for this week: A lot has been written recently about a Dow Theory “sell signal” that allegedly occurred when the Industrials and the Trannies both closed below their respective April 2012 reaction “lows.” Of course that event came following the Dow Theory upside non-confirmation that I wrote about in May when the INDU broke to a new reaction high, but the TRAN did not. That was just another reason for raising some cash, which we did. However, that does not constitute a Dow Theory “sell signal,” at least not the way I was taught. For me to get a “sell signal” would require both averages to travel below their November 25, 2011 closing lows of 11231.78 and 4533.44, respectively. Unless there is some sort of Black Swan event, I don’t expect that to happen. Still, to me Friday was merely a reprieve from Thursday’s selling-squall. That seems to be confirmed this morning with the pre-opening SPX futures down some 10 points. I expect some posturing out of Germany early in the week before it agrees to turn on the printing press and rescue Spain, which formally asked for aid over the weekend. If correct, the stock market should continue down into a bottom late this week or early next week. This is why we adhere to Benjamin Graham’s mantra, “The essence of portfolio management is the management of risks not returns.” Risk control is a careful aligning of interests combined with a balance between greed and fear. Above all it is the willingness to hold cash when opportunities are scarce and the odds are not tipped in our favor. We continue to invest accordingly
Comments
I thought I'd make a post since I have been silent the past week, or so. I usually read what Jeffery has to say each week and with this, I felt I would post his call of the weak.
For me, I am still with my asset allocation of about 25% cash, 25% fixed and 50% equity and other. Although, I have reported buying, in small amounts, though most of June it has not been enough to bubble off the 50% equity allocation as equities have been pulling back. If anything, I am currently slightly back of 50%.
Instead of looking for a trade, I am sitting on cash awaiting a pull back in the S&P 500 Index below 1300. With this I'll buy a little more as I continue to average cost into my special equity positions during market pull backs. Next stop for me will be around the 1300 and should it get back to 1275 ... I'll shop again.
Have a great summer ... and, Good Investing,
Skeeter