I am amazed at all the punditry happening this month as the stock market does exactly what the stock market should do. That is, make as many people as uncomfortable as possible.

That means all rules still apply. Sure, maybe some of them must adapt to a world full of derivatives and a zillion ways to express your bullish or bearish leanings. But the basic underpinnings of market psychology and human behavior remains steadfast.

Now, everyone has their panties in a twist over a possible Dow Theory sell signal. I’ve seen headlines like “A Dow Theory ‘sell’ signal could happen any day now” and “The stock market is on the brink of an absolute breakdown.”

Um, OK. Everyone has an opinion (me, too)

Embedded in there is the writer going mental over the 200-day moving average. The thing about the 200-day average is first, it is random.  There is nothing in natural market law that says 200-days is magic.

It got its start a long, long time ago, likely as a proxy for a nine-point-something-month cycle and got picked up by a guru or two. Then, charting vendors put it into their systems as default – just like a 14-day RSI. From then on, it was the holy grail of stock market trend following.

Why not a 205-day average? Or 188-day? And does it matter that trading hours and even trading days have changed over the years? Does after-hours trading not matter? Yes, I get that the close is the most important point but markets are a whole lot more fluid now with futures settling later and derivatives trading (almost) all night.

Dow Theory is a real thing and it should be, but if it fires a signal, everyone sees it.

Again, I have whined over the years how the Dow Industrials are only a fraction of actual industrials. And how the transportation of information is a giant part of the economy now. But nonetheless, we watch this one part of the theory where the DJIA and DJTA must confirm each other.

Let me ask a question. Does it matter that if the Dow Theory sell signal happens that the market will already be down some 10% from the January peak? You know, in correction territory. Ugh, another topic for my whining.

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