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Monday, July 10, 2006

How Dow are you?

It is a smelly predicament for France's David Trezeguet as his penalty kick found the upper crossbar and bounced just on the goal line and was decided out by linesmen. A sad story indeed as his limited playing minutes only resulted in heartache. He replaced Zidane in the penalty shoot out as the latter was given a red card and ejected out of the field. Zidane's head butt to the chest of Italy's Materazzi was not seen by referees but was caught on tape. And I thought replays were only used in basketball shot clocks.

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We definitely have interesting times in our hands in Asia. We have Koizumi giving a speech at Graceland while singing the jailhouse rock. He says he idolizes Elvis. Damn he sure was drunk while giving a speech on tv!. Then a week after his speech, North Korea sneaks in a nuke test. Washington is definitely hinting on "We Should Definitely Invade Them Part III." And next week, the party will be over.No more freebies from the land of the rising sun. Starting next week, it will be the Land of the Rising Rates as the BOJ will be raising interest rates for the first time in 15 years! Good luck to all of us parasites!

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The trend is our friend so the Dow theory says. If you are a trader, how Dow are you?

The theory was developed by Charles Dow, an investigative reporter turned NYSE member. In summary, his theory aims to identify the primary trend of the stockmarket and how to be able to ride the big movements. As stockcharts.com explains it: "They understood that the market was influenced by emotion and prone to over-reaction both up and down. With this in mind, they concentrated on identification and following: identify the trend and then follow the trend. The trend is in place until proved otherwise. That is when the trend will end, when it is proved otherwise."

This theory uses 2 major averages that determine which direction the market will most likely make its big move: (1) Industrials index; (2) Transportaion Index. Both of these averages must coincide for us to determine the general market's direction.
Here is the chart of the Industrials. Where do you think this chart will go?
And here is the chart of the Transports. Where do you think this chart will go?






Looks strong to me. Hey, who spilled the Kool Aid? More on the Dow Theory in the coming articles.

Charts courtesy of www.stocksharts.com

Bryan

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