Taking a Broad View – Three Charts

The following is an excerpt from Richard Russell's Dow Theory Letters

"Fools and fanatics are always so certain of themselves, but wiser people are so full of doubts." -- Bertrand Russell

Every once in a while I like to take a very broad view of all the markets -- the US and the rest of the world. So here it goes. The first chart below includes the Dow Jones World Stock Index. Here we see the World Index forming a top below a preceding top and then sinking below its (blue) 50 day MA. Not very good.

This second chart below shows Morgan Stanley's world stock average, minus the US stocks. This Index is a bit weaker than the one above, showing that US stocks are stronger than stocks in the rest of the world. Here again we see declining tops, which are usually bearish, and the Index has now fallen below both its 50-day MA and its 200-day MA. Conclusion: weakness.

This third chart shows the Wilshire Index and its three upward surges over the last three years. Of course, the Wilshire deals with almost all US stocks (over 5,000 of them) on our three US stock exchanges: the NYSE, the AMEX and the NASDAQ. At the end of the third surge, a little head-and-shoulder pattern has formed. These tiny H&S patterns can be powerful; a Dow close below 12500 would be bearish, but the big picture of the Wilshire is clearly bullish. And it shows that US stocks are stronger than overseas stocks. So if you must buy stocks, stay with the best sector of US stocks (obviously the blue chips with the best ratings and a long history of raising their dividends: PG, ABT, JNJ, KO, PEPSI, etc.)

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