Opening Position
June 2007
The Dow has closed above 13,000! That was enough to create an upbeat sentiment amid all traders, but what does the Dow Jones Industrial Average (DJIA) hitting 13,000 really mean? After all, it is only made up of 30 blue-chip stocks, which doesn't necessarily make it the best benchmark to determine how much money is coming into the equity markets. But it does carry a lot of history, and being the first index created by the legendary Charles H. Dow, it can't be ignored. But neither can the other index that was created by Dow at around the same time. That is the rail average or, as it is now known, the Dow Jones Transportation Index.
With all the attention focused on the industrials, there wasn't much talk about the transports, which also hit a new high. Both indexes simultaneously hitting an all-time high may provide us with some clues as to the trend of the markets. According to Charles Dow, when the industrials and transports give similar signals and hit new highs, it indicates the start or the continuation of a bull market. Since we are already in a bull market, it can only mean a continuation. So sit back and keep on using your trending indicators such as moving averages and price channels until the trend reverses. And when will that be?
IF you keep abreast of technical indicators and follow your trading systems with discipline, you'll get an indication as to when that trend will reverse. In the Technical Analysis of STOCKS & COMMODITIES interview this month, we had the opportunity to speak with Steven Primo, who has nearly 30 years of experience in the markets. He can't emphasize enough how important it is to apply a trading system that fits your trading style. In fact, from his many years in teaching traders how to trade, he has found that most traders fail because they follow a system that just doesn't fit their style.
We have also included "Bonanza Bottoms," an article that discusses how to take advantage of buying opportunities when a trend is just about to start. Look at what happened to the stock of Amazon.com (AMZN) of late. After months and months of moving in a relatively flat range, the stock just took off like a raging bull.
Whether
or not this type of action is any indication of what lies ahead, the markets
may prove to be very exciting. But the market never does what you expect
it to, so anticipate surprises.
Jayanthi Gopalakrishnan,
Editor
Originally published in the June 2007 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2007, Technical Analysis, Inc.
Return to June 2007 Contents