In a July 2008 Commodities Trends article I discussed a powerful, longer-term trading tool designed to determine the direction of the stock market in general, the Dow Jones Industrial Average in particular. I received more feedback from this article than any other I've written. 

As you might recall, this methodology has accurately identified virtually every major trend in the Dow over the past 100 years. It flashed the last sell signal in April 2008 at approximately Dow 11,350. The buy signal previous to that occurred in July 2003, at approximately Dow 9,275. (In October of 1982 it flashed a buy signal at approximately Dow 1,000; the subsequent sell signal didn't appear for the next 19 years, until Dow 9,000.)

In July 2009 I issued an update when the weekly chart turned positive, indicating the shorter-term action of the stock market had turned positive. I wrote that this action could indicate a tradable rally in stocks. However, I believe while stocks in general could appreciate in the near term, there are better places to be. (The better places I suggested included gold, the Canadian dollar and cotton, which have all performed quite well since the summer.)

Here's that weekly Dow Jones Industrial Average chart showing the short-term buy signal I told you about in July 2008:

Weekly Dow Jones Industrial Average 2007 to Present

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Source: Commodity.com

What about the longer-term outlook according to this methodology? As we go to press the Dow has rallied right up to the quarterly moving average and failed thus far; take a look at this chart:

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Quarterly Dow Jones Industrial Average 1972 to Present 

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Source: Commodity.com

It's the close at the end of the quarter--the end of this month--that will determine if the program goes back into buy mode with a new buy signal or remains in sell mode.  The magic number is approximately 10,450. If the Dow closes above 10,450 at the end of 2009, the program will go back into buy mode for the first time since the sell signal from April 2008 at 11,350.

However, the major trend remains down until it turns up. Right now the Dow, and stocks in general, is at a very low-risk sell area. In other words, this is a perfect technical point to be a seller of stocks, while looking to potentially buy back if this strength can continue through year's end.

I hope this guide is of help to you. Good Luck, and if you're interested in trading commodities with us, feel free to e-mail me at geo@commodity.com.

For additional trade recommendations, consider George Kleinman's subscription-based service, Futures Market Forecaster. And be sure to check out George's new book, The New Commodity Trading Guide, available now at Amazon.com.

Risk Disclaimer. Futures and futures options can entail a high degree of risk and are not appropriate for all investors. Commodities Trends is strictly the opinion of its writer. Use it as a valuable tool, not the Holy Grail. Any actions taken by readers are for their own account and risk. Information is obtained from sources believed reliable, but is in no way guaranteed. The author may have positions in the markets mentioned including at times positions contrary to the advice quoted herein. Opinions, market data and recommendations are subject to change at any time. Past results are not necessarily indicative of future results.

Hypothetical Performance. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.