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Dow Theory Dead? Greece Trumps Reliable Stock Signal

In a normal market, the wide disparity between the Dow Jones Industrial Average and technicals would be screaming an ugly message, but these are not normal times.
That's because the massive amount of headline risk—market moves driven by the constant churn of big news events—is at an apex and rendering the aforementioned cornerstone of Dow Theory extremely unreliable...if not useless.
Investors, according to the popular adage, run on fear and greed, and fear that debt default in Greece would lead to global contagion is the market's driving force. Even amid a plethora of bad news from the U.S. economy last week, stocks rallied on belief that Europe was moving closer to solving the Greek dilemma and removing the risk of another crisis.

Of course, the opposite has been just as true—whenever holes pop through in the latest bailout plans, the market quickly retreats.

"In the absence of concrete and credible action (in Europe), we expect investors’ confidence to continue to be eroded by a vicious circle of declining markets, falling liquidity and declining credit availability, a deteriorating economic outlook, and policy disappointment," Citigroup credit analyst Matt King wrote in a note for clients. "Unfortunately without confidence and with 2008 so fresh in investors’ minds, the value offered by markets counts for little."


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