The Dow Theory – Part 2


 


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This post is a follow up on the post I wrote about the Dow Theory. If you haven’t read that one yet, then I advice you to read that first (here) before you continue this story. 

As I mentioned in that post:

“The Sell signal is confirmed if the DJT breaks the Low of April 13, roughly 2.5% downside needed to trigger a new sell signal. That corresponds with a break below 20.400 (= -/- 2.5%) for the DJ Industrial.

In the ideal scenario and sell set up, the DJI would form a slightly Higher High while the DJT forms a slightly Lower High first, into the next major cycle date May 8-14

Well, this ideal scenario is currently in play as you can see in the chart below.

The DJ Industrial is forming Higher Highs, while the DJ Transport is forming Lower Highs.

Therefor, I think the remainder of May and the month of June are going to be interesting times, a period in which bears and bulls can make money trading the markets. The main question is: will the Dow Theory prove to be correct once again? 

For now, my main scenario is a bearish market for a 5-10% correction (S&P500 2300) after which the flight to private assets should intensify, equities take off to the moon and double in value by the end of 2019…really. And I am aware of the fact that equities aren’t cheap at the moment…you could say they’re hughly overvalued from a fundamental point of view..but in the end, it’s all relative.

And then I ask you: would you rather invest in Sovereign Bonds that pay 1% or 2% for a ten year bond, or invest in quality companies with a stable dividend pay out? I’m shorting Sovereign Bonds (and other consumer asset backed bonds, such as car and consumer loans) so it’s not hard to understand my view what could happen.

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