Dow Theory Sell Signal? Jeff Saut's Weekly Commentary (Raymond James) ~ market folly

Tuesday, November 3, 2009

Dow Theory Sell Signal? Jeff Saut's Weekly Commentary (Raymond James)

Our apologies for not posting this up sooner, but better late than never. Here's the weekly commentary from Raymond James chief investment strategist Jeffrey Saut. In this week's missive, he examines a possible Dow Theory sell signal.

Saut focuses on the fact that for a sell signal, you would need to see a secondary reaction and then confirmation by what happens after that reaction. So, first and foremost, Saut notes that "you need a downside reaction, which 'sets' the reaction lows, followed by a rally. If that rally fails to make a new reaction high, and subsequently breaks below the aforementioned reaction lows, then (and only then) will we have a Dow Theory sell signal, at least as I understand Dow Theory." This is somewhat similar to the scenario outlined by the guys at MarketClub in their video where they examine if the S&P 500 has topped out and broken its trendline.

In order for all of this to materialize, Saut says you would essentially need to see "a one-third 'give back' (that) would leave the Dow Jones Industrial Average at 8,910 and the Dow Jones Transportation Average at 3,412." This correction would then land the market in between the 50 day and 200 day moving averages. He notes his cautiousness since September as we have climbed a long way up, only to have a large gaping hole to potentially fall back down to should the market start to breakdown. He reiterates his cautiousness in his latest weekly commentary.

He concludes his piece by stating that while he senses we are into a secondary correction, the market is currently VERY oversold. As such, he feels it is a mistake to get too bearish and thinks the primary trend is still up until further evidence dictates otherwise. But, as mentioned earlier, he is still indeed cautious.

Embedded below is Saut's investment strategy (RSS & Email readers come to the blog to view it):

Also, you can download the .pdf here.

We've covered Saut's commentary each week for the past few weeks and you can check out his previous thoughts where he examined agriculture as a possible permanent investment. Additionally, he has previously re-iterated his skepticism over the never-ending market rally. Interesting thoughts as always from Saut and we'll continue to check in on what he's thinking each week.

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