Something to celebrate, sort of Commentary: Dow Theory's Schannep turns bullish, calls end of bear market

By Peter Brimelow, MarketWatch
Last update: 2:39

37NEW YORK (MarketWatch) -- A disastrous day, so I'll start with some cheerful news: Jack Schannep has turned bullish.
The editor of TheDowTheory.com said last night in an email to subscribers:
"Today's collapse in the stock market is what we have been looking forward to all year -- the end of the bear market! ... Yes, today we reached capitulation and that is the time to buy. I suggest investing 50% into the market now, equally between SPDR S&P 500 ETF (SPY:SPDR S&P 500 ETF
Schannep has been signaling this call for some time. He has a highly individual interpretation of the Dow Theory, explained in his new book, "Dow Theory for the 21st Century." See related column. But his actions now seem to be based on his proprietary technical indicators. He writes in explanation:

"That is what I will be doing in the model portfolio in accordance with the 'rules' of the Schannep Timing Indicator and our Composite Indicator. The last time we had such a signal was on October 9th, 2002, the start of that 5 year bull market."

Schannep's record (for the record) is looking better and better. Over the year to date, TheDowTheory.com is up 1.9% by Hulbert Financial Digest count, vs. negative 18.6% for the dividend-reinvested Dow Jones Wilshire 5000 (DWC:Dow Jones Wilshire 5000 Composite Index

This makes it one of only 13 letters out of some 180 followed by HFD to be in the black this year. Over the past five years, the letter has achieved a 7.31% annualized gain, vs. 6% annualized for the total return DJ Wilshire 5000.
There.

Feel better now?
Schannep's switch emboldened me to look at Richard Russell's Dow Theory Letters. The octogenarian Russell has been ill recently and has just admitted sadly that he missed the great break that began last summer. (See Sept. 19 column). But his long-run HFD record is so strong that his views have to be respected. See related column.
Russell sees clearly how this will end:
"This is real bear market action such as we've not seen since 1973-74. I expect this downtrend to end with an all-out panic-type crash. That would clear the air and serve to reduce the huge inventory of stock for sale. When the store of 'stock for sale' is emptied out, we will be close to the time when the institutional bargain hunters are ready to re-enter the market. That action will be characterized by a 90% up-day."

But he derides the idea that Dow Theory or anything else suggest a bottom can be called at this point: "Bear declines end in only one way -- in exhaustion."
After Tuesday's close, Russell wrote: "Today's decline was dreadful and atypical action...The stock market appears to be in full panic mode." But apparently still not enough to justify calling a bottom: Russell even speculates that the market may test the 2002 low Dow low of 7,286.


Oh well. Back to the cheerful, -- sort of. Peter Eliades' Stock Market Cycles is now the HFD top performer over the year to date, up 17.8%. Eliades was up 4.3% in September alone, vs. negative 9.3% for the total-return DJW. See related column.

In the last email bulletin available at press time, sent out on Friday night, Eliades wrote:
"Orthodox technical analysis would be looking for the possibility of a market low at current levels. And yet... and yet... with the exception of [one of his proprietary indictors] there is just no indication from the Trading Index moving averages that the market is forming a bottom of any importance."
Eliades says his work suggests, tentatively, a low of 8,000-8,600 on the Dow.