Dow Jones - a Victim of Mixed Messages - 5 / 27 / 2009

In this individuals opinion, it is a crucial week for the the future of the Dow Jones. There are many news items that are competing for trader's mind space. And there are a few questions we as individual investors or as individual speculators need to get our heads around as we look out 30, 90, and 180 days. Ultimately we must decide if the Dow Jones is an indicator of today's sentiment, yesterday's sentiment, or tomorrow's sentiment. The keys in any market driven investment strategy are 2. The first is to understand your own personal risk or exposure tolerance. The second is to recognize your own strategy, trader / speculator or investor. And then stick to that perspective no matter what. When you hear fund managers discuss or advertise a "disciplined" approach this is the process that they are attempting to describe. Under what circumstances are they buyers or sellers? The best managers never veer from the circumstances that determine their own buying and selling. And neither should you. Ignoring your discipline may be the biggest single mistake you can make as an investor or as a trader / speculator.

Of all the questions I receive from readers, the direction of the Dow is the most asked. Consistent readers know that I think following the Dow as a guide to one's personal investment strategy is a losing proposition. The Dow in my opinion is a puppet of large funds that day trade its index for sport more than as a value strategy. Since 9/11, the Dow has been little more than a measurement of professional investor sentiment on any given day. So while it is a good indicator of the present, it is not a good indicator of the future. And whether investing or speculating either approach to the capital markets is based upon the future value, higher or lower, of an individual issue or a group of individual issues. The Dow is no longer that. It is the sentiment indicator of the big money day traders. News items reverse it as much as discrete non-component company performance announcements. How is this an indication of the future?

So in fairness to my readers consistent questions, here is my current perspective on the Dow Jones. There is a ton of competing news out there. Consumer confidence higher, existing home sales lower, GM bankruptcy, Bank America raising capital. We are one headline away from a surge in the Dow or a plunge in the Dow. The question is which will it be?

It's a very difficult task from a value perspective. All value signs for the US Economy show a continued fall in productivity, continued decline in employment, consumer credit, housing. Increases in gas prices, food prices, commodities, inflation. We have nothing more than predictions by academics as to when all these decreasing value indicators will reverse. Now throw into the mix US government agencies, The Fed and The Treasury, willing to over extend their powers and ability to offer liquidity of any size and scope to mistaken lenders (debt holders in failed Fortune 100 companies) in order to limit the decreasing productivity effect on the US Economy. These efforts ultimately leading to significant inflation, misuse of funds by those in charge, and in this analysts opinion an eventual devaluation in the world's US Dollar keyed assets. For every negative announcement, the government throws out a positive announcement. When the Dow moves higher, the government uses the opportunity to release its negative news. Watch the financial media and see if I am right.

But leaving financial conspiracy out of the mix, this Dow Jones, barring War in Korea or Pakistan / Afghanistan - over the next 30 days will trade in its current range with a down side bias. By August we will see the Dow approach 9,000 based upon more and more corporations saying the recession, for them, is ending. And by December the Dow will make a run at 10,000. Unfortunately it will be a hectic and choppy market to that number. Ultimately the US Government led mixed message smoke will clear enough and combine with a weakening dollar (look for a dollar value slide in June and July) so that enough Fortune 100 companies will see productivity increases. And these increase will lead the day trader speculators to a higher Dow Jones Index conclusion.

Build Value Every Day.

Bradford van Siclen