Warning-Stock Market update 22 Nov 2007

A quick update after yesterday's market close.

The Dow Jones Industrial Average closed below it's August lows at yesterdays close. This combined with a confirmed bear market in the Dow Jones Transport Index (which closed below it's Aug lows several weeks ago) is what is known as a Dow Theory bearish trend indication (as both the industrials and the transports have broken below their previous lows and are now in confirmed downtrends).

This unto itself is no reason to sell to cash HOWEVER this indicator has a reliable record of telegraphing potential trouble ahead (it last signaled a sell signal in Sept, 1999 and we know where the markets went in 2000-2003). As such, it is a warning to be very cautious ahead.

Shown below is the Dow Jones World Index along with the other "popular" U.S. indexes (click on the chart to view).

As can be seen, on a daily closing basis only the Dow Jones Industrial Average has broken below it's August low. Interesting to note the Dow Jones World Index (which I use to monitor performance in our provident fund accounts) is still quite strong in relation to the U.S. market indexes and well above it's Aug low. This is the benefit of being diversified in a well balanced global index as opposed to a more defined and narrow "country" index.

It appears the U.S. based indexes are in trouble. The key question going forward is whether the U.S. will drag the rest of the world down with it (as it has ALWAYS done in the past) or if "this time it is different" given the strength in Europe, the Far East, China, India, etc. Can the U.S. fall the the rest of the world continue to rise? That is the billion dollar question.

Bottom Line:

My position is unchanged (50% equities, 25% USD, 25% Euro). For those who might be invested 100% equities ........ I do not currently provide investment advise but "I would not be comfortable if I were positioned in such a way". I think enough said.

Any changes and I will blog immediately. That is all for tonight.