FEATURED EXPERT: Richard Moroney

FEATURED EXPERT: Richard Moroney
27-DEC-04

Richard Moroney, editor of the Dow Theory Forecasts newsletter, discusses some of the upswings the market has displayed recently. Highlighting records that have been attained by the Dow Industrials and Dow Transports as well as the outstanding performance of the more broad markets, this featured expert explains that the bullish trend is being reconfirmed under the Dow Theory. Moroney adds that while this rally may remain strong in near term, a pullback under these conditions would not be surprising. Read this expert’s commentary and take a look at some names from his Buy List

Industrials confirm bullish trend


The Dow Industrials closed above the February high of 10,737.70, reconfirming the bullish primary trend under the Dow Theory. Subscribers should maintain a constructive stance toward equities, looking for opportunities to buy quality stocks at attractive valuations. For now, Richard Moroney’s cash position remains at 10% to 16%. As pullbacks in the broad market or individual stocks present opportunities, his cash position will be reduced.

Bull-market confirmation

At times, interpreting the Dow Theory is quite simple. On Dec. 21, the Dow Industrials closed at a 41-month high, finally surpassing the Feb. 11 close of 10,737.70. The Dow Transports closed at an all-time high.

Under any reasonable definition, the Dec. 21 closes in the averages represent significant highs. Under the Dow Theory, when both the Industrials and Transports are reaching significant highs, the primary trend is bullish — and higher stock prices are likely.

Supporting the bullish indication of the Dow Theory are uptrends in other averages and the broad market. The Dow Industrials represent the last major U.S. index to reach a significant high this year, and the strength seen in the broad market has been outstanding.

Fundamentals also support the idea that the trend is bullish. Corporate earnings are expected to reach record levels for full year 2004, as are dividend payments, share repurchases, and cash positions of U.S. companies.

However, subscribers should realize that the averages have not provided a new bull-market signal under the Dow Theory; the averages have confirmed that the uptrend that began in October 2002 remains intact.

Secondary corrections are part of all bull markets, and the speculative tone of the recent advance suggests a pullback may be necessary to dampen animal spirits on Wall Street.

Surveys of newsletter writers and other indicators suggest investor sentiment is unusually bullish — historically a sign that stocks may be due for a pullback. The percentage of NYSE stocks trading above 200-day moving averages is 82% — a level that suggests stock prices may be extended. . . .

See it here.