Ralph Acampora is a legendary market technician. His work and years of experience have earned him the nickname “The Godfather of Technical Analysis.” He was recently interviewed by Jim Puplava on the Financial Sense Podcast. They discuss the Dow Theory sell signal that flashed at the end of last year.
Jim begins by asking Acampora:
“Are we in a bull market, bear market or are we just in a trading range?”
Acampora answers by addressing Dow Theory and highlighting the relationship between the Dow Jones Industrial Average and the Dow Jones Transportation Average. He explains:
“If you look at the oldest theory in technical analysis, Dow Theory, we got a bear market signal when the market collapsed in December when both the industrials and transportation average broke below their 2018 lows, on a closing basis”
He explains that this Dow Theory sell signal is more of a “macro thing” He thinks that the market made an important low in December. Since then, we’ve seen what he calls a “vacuum rally” because there was no supply between the low, and where the market is currently trading. To him, all this suggests we can expect the market to be in a trading range.
Acampora then raises the issue that many new investors aren’t used to this higher volatility environment. He points out the FAANG stocks ($FB, $AAPL, $AMZN, $NFLX, $GOOG) have gotten crushed lately. It’s concerning to him that the leading stocks in the market aren’t stronger right now. The last time he remembers leadership getting crushed like this was in the early 1970’s when the Nifty 50 stocks went out of favor. He thinks investors will likely loose enthusiasm for some of these large growth stocks and be much more cautious going forward.
Jim then asks Acampora about what technical tools, like Dow Theory that he uses in his process to help him form a definitive market outlook.
Acampora answers by explaining his two favorite indicators:
“There are two indicators I look at, RSI and MACD. I like them not so much on a daily basis but more on a weekly basis. That gives me a more intermediate view as opposed to a short-term view”
Acampora says those indicators are currently saying the rally has relatively weak momentum. He’s looking for positive divergences from those two indicators in order to get more bullish. So far, he hasn’t seen these divergences.
One of the key takeaways from the interview is how important Dow Theory is to his process. At one point in the discussion, he recalls some advice he got from his mentors as a young technician. That advice was: “never fight papa Dow.” The tenents of Dow Theory are fascinating and worth learning if you’re interested in Technical Analysis. Click here to check out the entire podcast.