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I've been a little quiet lately. It's not that I don't have a lot to say, it's just that I've spent most of my time staring at the screen each trading day asking, "How?" and "Why?"
You see, that's what happens when markets get irrational. Traders like myself – and I mean those that have been around for more than a few market cycles – look at a market like this and ask questions because there's something to be learned… and of course, money to be made.
As much as most people want to think that markets don't change, they do. Like anything else, they evolve. More data, more coverage, more participation, more politics, etc. – all of these things force the market and its participants to evolve.
That said, there are a few rules that remain constant.
Value is desirable… Take a risk to be rewarded… The economy leads the market (not the other way around)…
Keep that last one in mind, and you have to fall back on the "Dow Theory." Here is how Investopedia defines this old chestnut…
So, the Dow hit a new high last week – that's one part of this age-old theory. The Dow Jones Transportation Index hit a new high… in April… and it's heading into a bearish trend.
That is a signal telling you and me to stay away from – or even short – this sector aggressively.
About the Author
Chris Johnson is a quant - he's obsessed with building and perfecting mathematical models that allow him to predict, with startling accuracy, the direction of the markets, entire sectors, and individual securities. For the last year, he's been researching and building a new system that lets him move swiftly in and out of the hottest stocks in the market for life-changing gains - entirely on his own terms. The results of his newly-minted Night Trader system are nothing short of amazing.
Chris also contributes to Money Morning as the Quant Analysis Specialist.