Investing strategies and secular bear markets

[Jess9]

I agree with Mick100, in that money will be made in good commodities in the next stage of the cycle. However, timing of entry into such stocks requires some very very careful management IMHO.

In this respect that old saying... making the $$$ when you buy - is particularly acute. In respect of this, I must remind myself daily as "cheap" commodity stocks keep ending up cheaper, on an average basis ; )

[Mick100]

Are you ready for something happy? Below we see a daily chart of the D-J Transportation Average. The Transports have moved steadily higher in the face of the declining Dow and in the face of the worst kind of economic news. Why argue with the Transport action (as many people are doing) -- it's a fact, it's happening. This is money talking. You might as well argue with gravity or the waves of the ocean.

Note that the Transports have not only refused to confirm the Industrials, they have build a rising three-level structure, which I show with the help of the three blue horizontal lines. It's difficult for me to see a big bear market developing while the Transports are diverging so strongly.

So what are we dealing with here? I'm just going to call it a mixed and confusing market. But it's a market that I would still treat with caution. When the Averages disagree, it's best to be cautious. Robert Rhea, the great Dow Theorist of the 1930s, wrote that "when the Averages disagree, it's usually a sign of distribution." That's a warning I've never forgotten. I pass it on to you for your consideration.

But hey, you've got to be impressed by those Transports. If it's a bear market, the Trannies aren't listening!

Richard Russell
Editor-in-chief - DOW THEORY LETTERS
http://ww2.dowtheoryletters.com

July 23, 2008

The inimitable and venerable Mr. Russell gained wide recognition via a series of over 30 Dow Theory and technical articles that he wrote for Barron's during the late-'50s through the '90s. Through Barron's and via word of mouth, he gained a wide following. Russell was the first (in 1960) to recommend gold stocks. He called the top of the 1949-'66 bull market. And almost to the day he called the bottom of the great 1972-'74 bear market, and the beginning of the great bull market which started in December 1974.

[STRAT]

Thanks Mick,
Nice post.

[Jess9]

Thanks Mick, from me also.

I'm still more cash than shares, but will re-consider - after a few more weeks, enough time for the NAB thing to spread further, if it is to occur. Be very good to either explode that "bomb" now, or have it shown to be a dud. So we can move on post sub prime et al, or at least continue working through it towards a issue over/contained...

[Hoop]

Like all subscription sites they don't tell you what they didn't get right.
Most Dow theory followers and their counterparts (TA analysts and EW principlists) had by the end of November 2007 convinced themselves that a bear market was going to happen...meanwhile the old guru Richard Russell was still fence-sitting at Xmas time. Fair enough as the TA guidelines for a Bear market did not happen until 2 weeks later in early January.Quote from Investment Postcards Dec2007
In the words of market veteran Richard Russell, author of the Dow Theory Letters: “This market cannot make up its mind. The bullish case is strong, the bearish case is strong, and a lot of very big money is very divide on the outlook for the stock market. Thus - we have a very nervous, high volatility market with the Dow jumping over 100 points (up or down) every other day. It’s enough to give an honest man the ‘willies’.”

I would only give a "c" pass mark with the above quote however because a good Dow expert (and Richard is ) would know by then (or at least 90% certain) that a technical (TA) bear market was near.....On the 9th of January 2008 the DOW and S&P 500 went into a technical Bear Market phase (see my post #55 (9th Jan 2008). Also Dow theory points to high volatility around market phase changes.
A week later the NZX50 followed into Technical Bear market as well.
In my post#56 (15 Jan 2008) NZX50 now in bear market phase I outlined proven investment Strategies an investor could chose from to fight the bear.

MicK100 I assume you are subscribed to his site I would interested to know if Richard Russell acknowledged the DOW bear Phase when it happened on 9 Jan2008

....Interesting to note that it took another 6 months before it became an official bear market....

Also one has to be aware that subscripted site use part of the story to fit their product they are trying to sell, and why not!!! they have to market their product anyway they can.

It is well known fact that the DJ Transport index was used as a precursor for the Dow in previous years. If the Transport index breaks a trend-line or alters it phase the DOW index will follow later..therefore giving these DOW/DJT watchers a forward prediction on which way the DOW is going to move.

On Micks chart it shows the DJT is not in a bear phase which is true, but doen't tell the whole story, only the part story Richard Russell want's to tell
Look at my comparison chart (DJT V DOW) below extended to 5 years for a clearer viewpoint The DJT (in blue) doesn't look that great compared with with the year chart from Dow Theory Letters does it?

The DJT gave 2 months trend-line break warning for the DOW (circle) back in October 2007

The DJT has performed twice as good than the DOW within the last five years.

Note the DJT has failed again to break the 5500 resistance level and has fallen back breaking its medium trend-line. (giving the DOW a 2 months notice???) [latest circle]

[Jess9]

Thanks very much Hoop. Australian $ s/term deposit looking quite attractive ; )

[Jess9]

Hoop, I guess your last line puts "an event" post the Olympics. I think an ex-builder who posts around here was also predicting "the crash" for then? Time will tell - and soon. Thanks for your analysis and strategies, as always thought provoking and appreciated!

[Hoop]

Thxs for those kind words Jess
Trying to analyse a bear market is very complex, and often prediction is not possible, but sometimes in researching past bear behaviour from different researchers I occasionally comes across predictable behaviour that are similar in pattern...I call that "all the ducks lining up in a row". This happened late 2007 which alerted many people including myself to believe the Bull run was ending.

Unfortunately this article's duck (below) does not line up properly with my last posts duck, which is not surprising, but it does line up with Micks post (re Richard Russell)

An article written by Hussman Funds in their research area tries to tackle the thorny issue of how long a bear lives for and how intense that bear is.
They identified two types of bear.....an bear with a recession and bear without recession.

Note this article was written in September 2007 at the top of a bull market

A paragraph from the article
Recessions present multiple layers of risks to investors. They are difficult to forecast. They are often difficult to identify even after they've begun. The bear markets they spawn are longer in average duration, represent some of the deepest declines, and are indifferent to starting P/E multiples. And most maliciously, much of the damage to stock prices is often done in a recession's early stages, when the economic evidence is the foggiest. Even so, there are various sets of indicators that have a good record for identifying recession risk. With those indicators increasingly giving warning signals, investors should be vigilant.

In gathering information from this paragraph, it seems that although this bear still has someway to go in duration its damage to stock prices may be mostly done. This gives us a glimmer of hope that the time to re-enter the market and pick up the bargains is getting closer

click here for the full article

[Hoop]

Update
The Stock Market bear market phase has been in progress for 10 months. It has been a mild bear so far for US Europe Aust and NZ but more severe for Asia especially China


At the moment no one on Sharechat is mentioning the Dow Theory, which is the foundation stone to investment doctrine.
At this very point of time something very important is happening... phase 3 of the Bear market has commenced a week or so ago..this is the last phase before this bear dies... Dow Theory outlines this phase behaviour... Dow Theory may not predict the future but it informs the investor where he/she is within a market cycle, so investment planning for the next phase can start.

We should put emotion to one side, cover your ears and eyes to emotive market noise which is deafing at the moment due to the despair of capulation and concentrate on doing company analysis (FA) so to select the best recovery shares quickly when the time comes.

Sounds easy but ......

[Kookaburra]

Yen is proving a good counter-cyclical way of holding cash in this bear market. I will continue with this in the interim. As you say Hoop, Dow theory has a big decline in store for us now. If I remember correctly the 3rd wave down is likely to be the longest. I think the graph suggests a target on the Dow of about 7500 though being out of the market I have given up watching.