Well, it appears I've come across a limit to Dow Theory.
In the case of divergence between the indexes, you still have to mitigate risk, because looking for peak divergences the way we have been is not technically a part of Dow's theory. It's an offshoot, and as we've seen, not a perfect one.
I was convinced we were in for a good bear market, but what we got was a quick sell-off followed by a rally back up to new all time highs on both indexes.
Now the question is: Do we keep buying stocks?
I honestly don't know. The markets are on crack as far as I'm concerned.
And so this leaves me with some options. Because I'm not sure what the market is doing, I am going to follow a dollar cost averaging approach until I see some clear signs over the course of several months that a crash is imminent. This will ensure that I have some cash to deploy should the market experience a good correction. I am also looking at sectors which are under-performing, like resources (precious metals in particular) and energy. There has been a nice sell-off in the gold space recently, and sentiment isn't nearly as bad as it was 6 months ago.
Now, my situation may be different than yours. I have 30+ years until I need this money, so I can take on quite a bit of risk. However, I am a conservative investor by nature, which is why the risks I take involve entire sectors, rather than single companies. I don't know enough about investing in individual companies, nor do I have the time to follow company news. Investing in indexes that cover entire economies, or economic sectors is a much better "Set it and forget it" strategy. I can then check quarterly, or yearly or whatever and re-balance as needed.
