February 20, 2012
The stock market has been erratic this year so far, and has become quite volatile after a long period of calm last year. We have made new all-time highs in some of the market averages, but not all. The Dow the most widely-watched index, and it has failed to make a new high as of yet.
According to Dow Theory, for a bull market to be in force, a new high in the Transportation Average (which was recently achieved) must be accompanied by a new high in the Dow. The Dow is still about 100 points below its high. Until this happens, the bull market trend remains suspect.
Dow Theory is not given much talk in the investing world, and for this reason it is a powerful tool. Once the crowd jumps on something, it begins to not work well. And since Dow Theory has been around for decades and never really caught on, I have found it a useful tool.
i have noticed that many of my recent trades have not been profitable, and I have been stopped out. This is a warning sign to be patient and prudent with new positions. Companies missing their earnings projections, even by a penny or coming in less that what was expected, results in pretty large moves downwards.
As you know, I am a position trader, not a daytrader, for most of my investments. While short-term trades and investments have their place in an investment portfolio, I believe the best path to wealth is to make and hold investments long-term. Not only do the positions require less work and management, you save a lot on short-term capital gain taxes.
The key, of course, is to get in at a price that allows you to hold a position long-term. This means buying when many are selling.
My feeling is that if and when the stock market makes a concerted new high across all major indices, there will be a pretty large move upward. In the meantime, traders and the “fast money” crowd are quick to sell on any news that is not overtly positive.
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