Posts Tagged ‘Long-Term Investment’
The Dow Theory: Part I
The Dow Theory is a major corner stone of Technical Analysis. It is one of the oldest and best known methods used to determine the major trend of stock prices. It was derived from the writings of Charles H. Dow as published in the newspaper he founded, “The Wall Street Journal”. It was later refined further by analysts and writers during the first few decades of the 20th century.
Seven Basic Principles of Dow’s Theory:
The Dow Jones Industrial Average and the Dow Jones Transportation Average reflect all information, experience, knowledge, opinions and activities of all stock market investors. Therefore, everything that could possibly affect the demand for or supply of stocks is not worthy of consideration.
There are 3 trends in stock prices. The Primary Tide is the major long-term trend. But no trend moves in a straight line for long, and therefore there come up Secondary Reactions in the form of intermediate-term corrections that interrupt and move in an opposite direction against the Primary Tide. Within these are Ripples, or minor day-to-day fluctuations that are or concern only to short-term traders and not Dow Theorists at all.
When the Primary Tide is upward pointing, this is also known as a “Bull Market”, there are usually three upwards pushes in stock prices. The first move up is the result of far-sighted investors accumulating stocks at a time when business is slow but anticipated to improve. The second move up is a result of investors buying stocks in reaction to improved fundamental business conditions and increasing corporate earnings. The final upwards push occurs when the general public finally notices that all the financial news is good. During this move there is usually rampant speculation seen.
When the Primary Tide is downward pointing, this is also known as a “Bear Market”, there are usually three downwards pushes in stock prices. The first push down occurs when far-sighted investors sell based on their experienced judgment that high valuations and booming corporate earnings are unsustainable. The second move down reflects panic as a now fearful public dumps at any price the same stock they just recently bought at much higher prices. The final push down results from distress selling and the need to raise cash.
The two Averages must confirm each other. To signal a Primary Tide Bull Market major trend, both Averages must rise above the latest highs made by their previous Secondary Reactions. To signal a Primary Tide Bear Market major trend, both the DJIA and DJTA must drop below their last Secondary Reaction lows. One average meeting these conditions alone in meaningless, but it is not uncommon for one Average to signal a change in trend before the other, with no set time limit as to when the second Average gives the trend confirmation.
Only end-of-day, closing prices on the Averages are considered. Intra-day price movements are ignored.
The end of a Primary Tide is confirmed only after being signaled by both Averages.
The next article will focus on some of the shortcomings of this Historic Theory.
Share and Enjoy
Japan’s Upswing May End Soon
Japan’s stock market appears to be at a decisive point, one that will determine whether 3-month up-cycle that has remained in place will continue. Notes, technical indicators are giving bearish signals, with Nikkei having fallen below its 52-week moving average and 100-day advance/decline ratio dipping below 95%, pointing to possibility that Japanese shares could remain weak through September. In Today’s trading, the Nikkei Index dipped down to 9378.23, down below its’ previous inter-day 2010 low. This is a critical technical development to watch as going forward with Japanese equity investment.
New Prime Minister Naoto Kan will be judged depending on whether he can rein in finances and promote economic growth, promises unfulfilled by predecessor Yukio Hatoyama. Both Nikkei and Topix both lost over 7.0% during Hatoyama government. Investors see Kan as advocate for weaker yen, often viewed as positive for Japan’s export-oriented market. It would hardly be surprising if Kan envisioned a scenario in which a weaker yen pushed stock prices higher. But analysts say equity market recovery is unlikely unless Kan implements credible policies to lift the broader economy.
Share and Enjoy
America’s Retail Markets: Part IV
Since our last installment of this series, Gymboree, a Physical Fitness retail company and one of the largest in its’ field, has stopped the daily downtrend it was in and established technically what was looking as a weekly and even monthly upwards trend (see charts below). It has hit the Bollinger Bands upper bounds, a sign of excess power that needs respite, and has this week bounced off the fresh trend-line that is both weekly and monthly, successfully.
The RSI is in a good intermediate territory. The ATR, or Average True Range, shows the true ranging of prices across the time line and an upswing in the making. When the ATR heads in an upwards direction, as is the case now, this foretells a good upswing in the making.
We intend to bring you a fifth part to this series, examining the Economic view of the Retail market as it stands to date. What this segment means to the US Economy and the world as a whole, and dissect technically some Market Sector ETFs from the US Retail Markets to try to determine the trends that may be taking shape in this, likely the most important market segment in the US Market and therefore a leading indicator of where the world may be headed.
Remember, this is a definate buying opportunity, but only for the middle to long term investor. Those who tend to become emotionally involved with trading and are constantly counting dollars and cents are not for this trade. Also for this type of trading you need deeper pockets to be able to absorb a larger stop-loss. At any rate the risk-reward factor here is almost 1:5 with a chance to gain in long-term monthly time-frame investing of as much as 25% which is not bad for 8-15 months or less work.
This is the way the Weekly Chart looks:
This is the way the Monthly Chart looks:
