A Road To Nowhere


Seldom have stock-market indexes gone so long without going somewhere.

For the Dow Jones Industrial Average, this year's closing high is only 6.7% above the low — the smallest range this far into a year in the Dow's 119-year history. So far in 2015, the average has had 16 trading sessions in which it went from being up for the year to down, or vice versa. Never before has the Dow crossed the unchanged mark so many times in a calendar year.

The S&P 500 Index has traded within a 6.9% spread so far in 2015, making this only the second time the index has gone so long from the start of the year with so little movement. The S&P 500's spread between closing high and closing low over the past six months is 4.4% — narrower than any six-month spread since the index's inception in 1957.

Only four other times has the S&P 500 had a six-month spread of less than 6%, according to Bespoke Investment Group. Following the breakouts from those narrow ranges, the index was higher six months later all four times, "but the S&P 500's forward returns weren't necessarily explosive to the up or downside," according to Bespoke.

Still, we'd view a downside breakdown as a bearish development. In fact, we'd see a move below this year's closing low of 17,164.95 in the Dow Industrials as confirmation that the Dow Theory has switched to the bearish camp. At this writing, the Industrials are about 1% from 17,164.95.

Some Dow Theorists might insist on a fresh breakdown to new lows in the Dow Jones Transportation Average, which has bounced nearly 4% from lows reached July 8. But the Transports reached a series of significant lows in April, May, and June, so insisting on fresh lows seems like asking for trouble.

However, our recommended cash position will depend, among other things, on the clarity of any bear-market signal. Fresh lows in the Transports would make any such signal clearer, as would a breakdown in broader indexes and unweighted measures like advance-decline lines.

The S&P 500 Index is more than 4% above its January closing low of 1,992.67. The S&P 1500 advance-decline line, a running total of advancing minus declining stocks, has bounced after hitting a nearly six-month low in late July.


While the Dow Theory remains in the bullish camp until proved otherwise, our cash position has swelled, partly because of the market's mostly unfavorable reaction to June-quarter results. But we continue to look for opportunities, and this week's two additions to the Long-Term Buy List bring its stock-market exposure to 75.8%, the same as our Focus List and Buy List.

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