Dow Theory Comment

4/25/2016


When both the Dow Industrials and Dow Transports are reaching significant highs, the primary trend is presumed bullish under the Dow Theory.

The Dow Transports moved above their mid-March high, recouping the roughly 5.2% pullback that ended April 7. But the Dow Industrials have not suffered a meaningful pullback since bottoming Feb. 11 — and have moved within 1% of the May 2015 all-time high.

Broader indexes like the S&P 500 and S&P 1500 have also rallied within striking distance of all-time highs. The S&P 1500 advance-decline line, a running daily total of advancing stocks minus declining stocks, has reached all-time highs.

In short, it's becoming harder to argue the primary trend is bearish. But, with valuations somewhat stretched and earnings under pressure, we'd like to see a clear bull-market signal before committing our remaining cash reserves. For now, as a partial hedge, our equity portfolios have about 22% in a short-term bond fund. With the other 78%, we emphasize attractively valued growers with the potential to exceed expectations.

 


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