Dow Theory Comment


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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