What’s the DOW Going to do?
you really want to know? O.K., the Dow is going to go up. And
going to go down awhile. Later on it will rally
and then stall. Sometime after that it’s going to falter
and then go down.
Do you feel
better now? There are few days that go by where someone does
not ask this
question or one very close to it. Sometimes I
wonder what the askers would do if they really knew exactly what
the DOW was going to do. Yes, the DOW will do what it will do no
matter what we think we know. But that is not a bad thing. If you
are willing to go where the money is flowing, you’ll do very
nicely—very nicely indeed. Let me show you a little trick.
If you have a chart with 20-day and 50-day moving averages drawn
you’re all set.
The red line on the chart to the left is a 50-day moving average
of closing prices. The green line is a 20-day moving average. These
two little lines will help you see where the money is going, either
into or out of the DOW.
As the green
line passes up through the red line we’ll buy
or go long. If the green line moves down below the red line we’ll
sell or go short.
As you can
see, the past few months have been the time to buy. Right now
line is starting to dip down toward the red
one. This indicates that it is time to get ready to sell. When
the green line actually crosses down through the red one we’ll
sell or go short.
make this harder than it needs to be. Just look at the lines.
If the green is above the red we’ll stay in long
positions. When it crosses back down through the red, so it’s
now on the bottom, we should not be buying. This next chart is
the NASDAQ. You decide—should you have been buying over the last
months or not?
NASDAQ has been moving up very strongly, keeping the green
20-day moving average line well above the red 50-day moving
line. During this time, you can see that for brief periods the
NASDAQ actually went down. It is during these kinds of movements
Big Question’ comes up. “Hey Coop, is
the NASDAQ going to go up or down?” Yup, now you know
the answer. "It’s
going to go up and then it will go down a bit followed by some
sideways with more up later on."