This article will start by mentioning some of the shortcomings of the Dow Theory, which is explained in detail in: My First Post Examining Dow Theory.   For example, the Dow Theory, on average, might miss around 20 to 25% of a move before generating a signal identifying it. For many traders this is too late. A Dow Theory buy signal usually occurs in the second phase of an uptrend as the price penetrates a previous intermediate peak.  This is about where most of the trend following technical systems begin to identify the existing trends.

There is never a time when the Dow Theory does not lend itself to presumptions as to questions concerning the direction of the primary trend, because this is an area that is highly prone to misjudgment, particularly at the beginning of each major trend and ensuing for a short time after when the answer given by Dow will usually be prove wrong. There will be a certain time then when the Primary Trend will be up according to Dow, but analysts may advise not to invest at that stage because the looks of the trend are showing on the trend being diminished somewhat and the smart investor better stay out, and the one who is already invested may wish to opt out at this point, being that there is a larger chance that the trend will fail.
However as you see in the Chart below, one can do pretty nicely for himself over the years if he buys and sells only of Dow Theory signals:

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During what was called the “cold war” that ended with the fall of the Communist Totalitarian Regimes in Eastern Europe, one of the major fears was a military conflict between Russia or China and the U.S.
It did not happen. The potential of a military conflict has instead evolved into an economic war.

The U.S. was winning hands down for a long time. It used to be that the U.S. was number one in almost every category: education, technology, standard of living, economic and military strength; and as a moral and ethical leader of the world. It was leading the rest of the world into the future with the demonstrative power of democracy and free markets, for example, new technological breakthroughs in many fields: automation, computers, communications, energy, medicine and space travel, amongst others.

In recent years, a number of countries have surpassed the U.S. in specific areas, including consumer incomes, standard of living, and health care. The true economic powerhouse, however, has been China. Some of the statistics, and the speed with which they have changed, have been startling. Over the last ten years Chinas economy has surged past those of Canada, Spain, Brazil, Italy, France, and Germany, and is expected to pass Japan this year, to become the second largest economy in the world, behind the U.S.

Whether it is categories of manufacturing efficiency, high-speed rail-line technology, nuclear power plant construction, clean air energy technology or education, China is making impressive global inroads, even in areas where the U.S. still has significant dominance. Much of it has to do with Chinas massive population, about which the U.S. can do nothing.

For instance, while U.S. Internet companies dominate global headlines, China now has the worlds largest Internet market as measured by the number of users. Yet Internet use has only penetrated 22 percent of the population versus 75 percent in the U.S. Meanwhile, U.S. Internet giants like Google, Yahoo, eBay, Amazon and FaceBook are experiencing problems trying to transport their dominance into the Chinese market. Part of this are obstacles placed in their way by Chinas government, in support of Chinas state-controlled corporations. The result is Chinese Internet companies like Tencent, and Baidu, cannot help but become world leaders.

Here is a statistic of more importance: U.S. universities should graduate about 150,000 engineering students this year, while Chinese universities will likely graduate more than 500,000. Now that may be an unfair comparison since Chinas population is larger by approximately the same ratio. But that is not the issue. The issue is the degree to which China has moved higher education to the top of its priorities, and the fact that 500,000 new engineers a year will probably come up with more high-tech innovations than 150,000 can. Chinas great leap forward has been going through the same phases that the United States experienced in the turn of the last century as it worked toward becoming the worlds dominant economy.

In the midst of all this, it may be that China is starting to eat Americas lunch, never taking its eyes off the goal; while we squabble among ourselves, paying no attention. Thats unfortunate. As Sam Houston said in the U.S. Senate in 1850, “A nation divided against itself cannot stand.” Yet, for the last 15 years the U.S. has divided itself in increasingly bitter time and energy-consuming political arguments: the morals of President Clinton, whether or not war should be waged to remove Saddam Hussein from power in Iraq, whether the country’s current problems are due to the depth of the economic hole dug during the last administration, or ineptness of the current administration in pulling the economy out of the hole.

Meanwhile, China has instead kept its eye on the goal. It not only is making great economic strides, but on the financial side has become the worlds largest creditor nation, even as the U.S. has become the worlds largest debtor nation, with China holding much of its debt. The U.S. needs to interrupt its angry divisiveness and name-calling long enough to recognize the importance of what is going on. Unfortunately, historically speaking; this does not seem to be happening soon.Popular Posts:

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This is Vanguard Fund Group’s Sector Fund that follows the whole world markets’ trends and situations.  Excepting, and this is one HUGE exception, the United States.  This fund was formed in 2008 in the midst of the sub-prime fiasco in an attempt to gain investors who sought less affected areas of the world as a general investment.  This proved wrong because, as we know, the depression became world wide and Vanguard investors lost about the same as, say, an investor in the Futures Contracts on the S&P 500.

This Fund is now in a long term sideways (resting) pattern called a symmetric triangle.  It is shown on the weekly chart below.  It seems ready to break out and will probably do so within the next 2 weeks or so.  The profit potential at breakout is about 35%.  Follow the Chart on a daily basis with the triangular lines drawn upon the weekly chart, and AFTER a break is confirmed, only then buy long if it is breaking upwards, or sell short if it is breaking in a downwards direction.  These is generally a pattern with a high percentage of breakouts being fulfilled.

This is the way the Chart looks:

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If you look to the Chart below you will see most evidently the major top I speak of.  It is a Head and Shoulders top like the one in my US Dollar Index article’s Daily Chart.  But this is on the Weekly Chart and therefore shows longer term patterns.  This top is considered a long term major top and may play this role for some months to come.  The target to fulfill the pattern may be below 950 point for the S and P 500 Index and may well spell the beginning of a long term downwards cycle for the world’s financial markets.

This is the way the Chart looks:

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The US Dollar Index Futures, a major tool used to estimate the US Dollar’s true worldwide value as it trades against the major currencies of the world, has been quietly making a technical pattern called a “head and shoulders” .  If you look at it  carefully you will see an image, more or less of a man’s head and shoulders, with the shoulders peaking slightly at their end.  This is the classical look of the pattern.  Once more, the Index has already broken out from the pattern, i.e. passed the neckline, and is on the way to fulfill its destiny and head to the target I listed on the Chart below, that is, 82.00 points.

Since this pattern is usually associated with major tops and we have no reason to believe that such is not the case here, I do believe we are at the start of a major downwards trend that could last a few months to a year and drag the Dollar down to places it has not seen in a long time.  More than 10 years of US Government spending on wars and bailing out financial criminals have flooded the world with its own currency of reference.  Now it is time for the Dollar to pay back for the devastation it has wreaked on many innocent people.  It will be only a symbolic gesture, and we may well forget it this time next year.  Because, you know, this is a world where lies thrive and the Mighty Dollar rules!

This is the way the Chart looks:

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If one gives a brief glance at the Charts of major currencies as they are currently being traded against the Euro, there can be observed a certain change, maybe even a trend-reversal in the making.  This is especially true when you see the EUR/JPY cross rates in the Chart below:

The June Double Bottom can be clearly seen as a W shaped bottom built in a classically-shaped pattern.  What makes the bottom even more commanding is the long and extremely proving negative divergence that I show in blue from the beginning of May to the start of June.  The RSI trend, as shown by the blue line below, is in an upwards trend, while the prices are in a definite downwards trend, as shown by the blue line above.  This lends credence to my thesis of a W bottom having formed on this Chart.

All of this  is good news for the Euro, which had little good news to smile at lately.  And, considering the 6-8 possible bottoming patterns I have seen in Charts depicting trading of the major currencies vs. the Euro, this may be indeed the time to invest in what I see is a relatively cheap Euro that in my mind has been bashed enough and is now in turn for better days.Popular Posts:

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