Long term perspective on the Dow.

Posted on Jun 06, 2010 by in Letters

Readers who have read Sacred Chickens, the Holy Grail and Dow Theory will remember that the system discussed there used weekly bars.  Weekly bars have the characteristic of stepping back from daily volatility and enabling the tracking of long term trends with more tranquility.  We took a look at this system given the extreme volatility of the last 30 trading days.  In this system the Basing Point is more clearly articulated than in the daily system, occurring at the downwave low of February.  We have  annotated the chart with the stop  generated from this Basing Point, and as the reader will see it is around 300 points lower than the daily stop.  This might appear to be just theoretical nattering, but if we were sitting on large long term positions we would be using this stop.  And we would be trading against it to ameliorate the  short term pain of the downwave.

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