What Can We Expect From The Stock Market?
Q What is the status of the Dow Theory?
A After reaching all-time highs, the Dow Industrials and Dow Transports suffered significant corrections to close at respective levels of 15,372.80 and 7,053.75 on Feb. 3. The Industrials then rebounded 5.1% and retraced 65% of their Dec. 31-to-Feb. 3 decline, while the Transports rebounded 3.6% and retraced 49% of their Jan. 23-to-Feb. 3 decline.
While a more substantial rebound in the Transports would make for an easier call, we view the rebounds since Feb. 3 as significant. That means the state of the Dow Theory is clear. Rebounds above the all-time highs of 16,576.66 in the Industrials and 7,569.89 in the Transports would reconfirm the bullish primary trend. If one or both averages fail to surpass those levels, breakdowns in both averages below the Feb. 3 closing lows would represent a bear-market signal.
Q What is the stock market going to do?
A We don't know. We do know what we're going to do; we're going to execute our game plan, changing course if circumstances dictate. With new highs in the averages, we're likely to stick with our mostly invested posture. If we get a bear-market signal or see a dearth of high-potential opportunities in individual stocks, we will raise our cash position substantially. For now, we're holding 89% to 91% of our buy lists in stocks.