I don’t generally subscribe to Dow Theory, but having been a long-time reader of Jeff Saut, I do recall the Dow Theory sell signal he often discussed in 2007 and 2008 that preceded the 2008 equity collapse. According to Mr. Saut, a sell signal was just recently triggered although he’s keeping an eye on the indicator for confirmation:
Well, while I didn’t believe it was going to happen, the D-J Industrial Average (DJIA/11444.61) confirmed the D-J Transportation Average (TRAN/4693.59) last week when both of those indices broke below their respective March 16, 2011 closing reaction “lows,” thus rendering a Dow Theory “sell signal.” It was the first such “sell signal” since November 21, 2007. Unlike the November 2007 “sell signal,” this one came at much lower valuation levels and following a nearly 11% decline since the selling stampede began on July 8, 2011.
…While my hunch is last week’s Dow Theory “sell signal” will prove false, like the one that occurred during May 6, 2010’s “Flash Crash,” I would still tread carefully “living forwards.”
Source: Raymond James
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.