We evaluate here the market commentary of Richard Moroney, editor of the Dow Theory Forecasts newsletter since June 2002, initially via Zacks.com and later from MarketWatch. This service claims that: “The Dow Theory’s record of keeping investors on the right side of major market trends is impressive and is a tool that no serious investor should be without.” The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that:
- With respect to market timing, Richard Moroney tends to be reactive, moving toward cash after substantial market declines and toward equities after advances (consistent with Dow Theory). Adjustments to his recommended cash-equity ratio seem too small to make a substantial difference in risk or returns.
- His short-term calls are often equivocal, making it difficult to assess subsequently whether they are right or wrong. In fact, he seems to have sworn off short-term and intermediate-term stock market forecasting in public commentaries, but he still believes he can predict the fortunes of individual stocks.
- Richard Moroney’s forecast sample is small, so confidence in the measurement of his accuracy is low.
Here are additional notes to augment the tabular summary:
From Mark Hulbert in MarketWatch (5/30/12): “The HFD has data back to the beginning of 2002 for three hypothetical portfolios that traded between an index fund and cash on these three timers’ interpretation of the Dow Theory. Schannep is well in the lead for performance since then, followed by Moroney. Russell is solidly in third place.”
See “Dow Theory Long Dead?” for an analytic reconsideration of Dow Theory as a timing strategy by Stephen Brown, William Goetzmann and Alok Kumar.
See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of the commentaries of other individual market pundits and gurus. For methodologies comparable to Mr. Moroney’s, see especially Richard Russell and Jack Schannep.
| S&P 500 Index | ||||||
| Date | Comments from: Richard Moroney via zacks.com and MarketWatch.com | 5-Day Return | 21-Day Return | 63-Day Return | 254-Day Return | |
| 11/9/12 | Moroney remains bullish on the market’s major trend. | -1.4% | 9.9% | 18.4% | 29.1% | + |
| 5/18/12 | …according to Dow Theorists such as…Richard Moroney of Dow Theory Forecasts, the Dow Theory remains on a buy signal today. | 1.7% | 4.8% | 9.3% | 27.4% | + |
| 2/7/12 | …Moroney…believe[s] that the Dow Theory is solidly in the bullish camp… | 0.3% | 1.4% | 1.7% | 12.8% | + |
| 3/18/11 | …also bullish on the stock market…is Richard Moroney… He believes that a Dow Theory sell signal, even if one were to occur, is a long way off. …Moroney views the market’s recent correction as not unexpected…: “Even a pullback below 11,000 … would not be surprising…” | 2.7% | 2.0% | -0.9% | 9.7% | + |
| 7/26/10 | …Richard Moroney…interpret[s] the Dow Theory as still being on a sell signal. | 1.0% | -5.7% | 5.9% | 17.0% | + |
| 5/21/10 | “…this year’s new highs [were] the last confirmed signal under the Dow Theory — we are sticking with a mostly invested posture.” | 0.2% | 0.7% | -1.1% | 21.0% | – |
| 2/10/10 | “[T]he risk of a decline in coming months seems relatively high.” …he is recommending that his subscribers allocate 20% to 25% of their equity portfolios to short-term bond funds. | 3.6% | 7.7% | 8.2% | 24.4% | – |
| 10/16/09 | …Moroney interprets the Dow Theory to remain in the bearish camp. …the stock market is likely to undergo a significant correction in the next several months. | -0.7% | 2.0% | 4.4% | 8.3% | – |
| 7/23/09 | …we’re in a bear-market rally. | 1.1% | 5.1% | 11.8% | 14.1% | + |
| 6/12/09 | Moroney currently rates the stock market’s primary trend as being bearish… | -2.6% | -4.3% | 10.3% | 17.8% | + |
| 2/2/09 | Also bearish is Richard Moroney…on his interpretation the Dow Theory turned bearish at the end of September… | 5.4% | -13.6% | 6.3% | 28.8% | – |
| 7/3/08 | Though Moroney doesn’t come out and say so in his latest issue, in prior issues he has said that, from a Dow Theory point of view, the primary trend is presumed to remain in force until a contrary signal is triggered. On that basis, therefore, Moroney must be considered bullish. | -1.9% | -1.1% | -8.1% | -30.4% | + |
| 11/21/07 | Bear market. | 3.7% | 4.8% | -4.5% | -39.9% | + |
| 8/15/07 | “…further volatility would not be surprising in the near term, and subscribers should maintain a constructive and opportunistic stance toward equities. The primary trend remains in the bullish camp under the Dow Theory, and quality stocks are available at reasonable valuations.” | 4.1% | 5.5% | 2.3% | -9.1% | + |
| 3/15/07 | With near-term volatility likely, a move to 11,400 on the Dow Industrials would not be surprising. Market action has been consistent with a correction in an ongoing bull market, and the Dow Theory remains in the bullish camp. | 3.0% | 5.5% | 8.9% | -4.4% | + |
| 2/12/07 | …the bull-market confirmation suggests any pullback should be viewed as a buying opportunity. For now, a 5% to 10% cash position seems appropriate. | 1.8% | -3.2% | 4.9% | -5.9% | + |
| 12/22/06 | …the Dow Theory remains on a buy signal… | 0.4% | 0.8% | 1.3% | 4.8% | – |
| 9/15/06 | …an opportunistic, slightly defensive stance remains appropriate. | -0.4% | 3.7% | 7.1% | 15.1% | – |
| 8/15/06 | …take an opportunistic, slightly defensive stance, looking for buys one stock at a time and holding 5% to 15% of equity portfolios in cash. …several factors suggest the Fed will be less relevant this time… | 1.0% | 2.4% | 7.4% | 12.4% | + |
| 6/28/06 | …recent weakness looks like a correction in a bull market, and many quality stocks are available at appealing prices. | 2.3% | 2.6% | 7.3% | 22.4% | + |
| 4/27/06 | Stay out of the prediction business… Subscribers want stock picks. | 0.2% | -2.3% | -3.2% | 14.2% | + |
| 1/9/06 | …neither small-cap, midcap, nor largecap stocks appear overly expensive or overly cheap right now. | -0.6% | -1.9% | 0.4% | 10.9% | + |
| 11/9/05 | …newspaper headlines…should not yet drive you to panic. …the Fed appears willing to continue raising interest rates, and core inflation is unlikely to rise above the 30-year average of 4.4%. | 0.9% | 3.2% | 3.5% | 13.4% | – |
| 10/26/05 | …few things are more destructive to stock prices than rising inflation. …a sustained rally in the stock market seems unlikely… | 2.0% | 6.5% | 6.9% | 15.7% | + |
| 10/12/05 | Hold 5% to 15% of equity portfolios in a money-market or short term-bond fund, with the remainder in reasonably valued shares of quality companies. | 1.5% | 4.5% | 9.9% | 16.3% | + |
| 9/26/05 | While not particularly cheap, the typical U.S. stock does not seem obviously overvalued in light of expectations for profit growth, interest rates, and inflation. | 0.9% | -1.6% | 4.3% | 10.1% | – |
| 8/29/05 | …a slightly more cautious posture is probably appropriate. …cash positions now exceed 12%. Still, aggressive selling seems premature, and you should not be afraid to buy stocks that pull into attractive buying ranges. | 1.7% | 0.4% | 4.6% | 7.6% | – |
| 7/22/05 | With the typical U.S. stock no longer trading at such a big discount to the major averages, outperforming the indexes is likely to be more difficult. But the typical U.S. stock is trading in line with 13-year norms, and valuations alone should not be a roadblock to further gains. | 0.0% | -1.0% | -3.1% | 2.8% | – |
| 7/11/05 | The Dow Theory remains in the bullish camp. Quality stocks are available at reasonable valuations, and the broad market is advancing nicely. | 0.1% | 1.0% | -2.3% | 1.9% | – |
| 4/25/05 | By the end of this year, corporate America’s profit margins may be on the decline because of rising capital spending and labor costs. | 0.0% | 2.8% | 6.2% | 12.7% | + |
| 4/15/05 | …midcaps offer an attractive risk-reward profile. | 0.8% | 2.0% | 7.3% | 14.6% | + |
| 3/15/05 | …small-cap stocks continue to deliver strong earnings growth, which suggests they are poised to outperform. | -2.2% | -3.0% | 0.3% | 9.1% | – |
| 1/12/05 | …with the primary trend in the bullish camp, subscribers should be looking for buying opportunities. | -1.0% | 1.5% | -1.2% | 8.0% | – |
| 12/27/04 | …the bullish trend is being reconfirmed under the Dow Theory… Richard Moroney’s cash position remains at 10% to 16%. As pullbacks in the broad market or individual stocks present opportunities, his cash position will be reduced. | -0.2% | -2.6% | -2.5% | 4.4% | – |
| 11/11/04 | Profit growth is likely to decelerate in 2005, and investors had better be prepared. This is not the time to throw caution to the wind. | 0.9% | 2.1% | 2.0% | 5.1% | + |
| 9/14/04 | The primary trend remains bullish, and investors should continue to look for opportunities… | 0.1% | -1.3% | 5.3% | 8.8% | + |
| 5/24/04 | The market seems oversold and due for a bounce. | 2.4% | 4.1% | 0.0% | 9.3% | + |
| 3/9/04 | The Dow Theory remains in the bullish camp…recent divergence between the Dow Industrials and Dow Transports heightens the risk of a near-term correction… | -2.6% | 0.0% | 0.0% | 5.2% | + |
| 2/24/04 | For the first time since June, the averages are giving Dow Theorists a reason to worry… For now, with the Dow Theory in the bullish camp, Richard Moroney’s recommended cash position remains at 5% to 10%. | 0.9% | -4.2% | -4.0% | 6.3% | – |
| 2/9/04 | While further volatility would not be surprising, …maintain a constructive stance toward stocks. | 1.5% | -1.4% | -3.6% | 5.0% | – |
| 1/26/04 | A short-term pullback would not be surprising. But the Dow Theory remains in the bullish camp, so such a setback should be viewed as a buying opportunity… Richard Moroney’s recommended cash position remains at 5% to 10%. | -1.7% | -1.0% | -1.3% | 1.7% | – |
| 1/13/04 | …the risk of a correction is relatively high… The market’s primary trend is bullish…Moroney’s recommended cash position remains at 5% to 10%. | 2.4% | 2.8% | 0.7% | 5.6% | + |
| 10/14/03 | …near-term volatility would not be surprising. Still, with the primary trend in the bullish camp under the Dow Theory, subscribers should maintain a constructive stance toward stocks. | -0.3% | 0.9% | 6.8% | 6.1% | – |
| 9/26/03 | …stock prices already discount an economic recovery…a broader correction would not be surprising… | 3.3% | 3.4% | 9.7% | 11.8% | + |
| 8/25/03 | The Dow Theory…is signifying a bullish primary trend…take advantage of market or sector pullbacks… Richard Moroney’s recommended cash position is being reduced to 10%. | 2.8% | 1.6% | 4.0% | 11.5% | – |
| 8/12/03 | The market’s primary trend is bullish, but a 5% to 10% pullback in the major averages would not be surprising. Our cash position remains at 15%. | 1.2% | 2.6% | 6.3% | 9.0% | + |
| 6/23/03 | On June 4…a bull market was confirmed under the Dow Theory, and Richard Moroney’s recommended cash position dropped to 15% from a range of 18% to 22%…his cash position had been lowered in March, April, and May, partly on expectations that a bull-market confirmation was possible…the market seems due for a pullback. | -0.7% | 0.7% | 5.6% | 15.6% | – |
| 3/6/03 | Of the portion of your portfolio committed to equities for the long haul, hold 25% in money-market funds or short-term bonds as a hedge. | 1.2% | 6.9% | 20.0% | 38.7% | + |
| 2/3/03 | The last important signal under the Dow Theory was October’s confirmation of the bearish primary trend…hold 25% of your equity portfolio in short-term reserves. | -2.8% | -3.5% | 8.1% | 31.2% | + |
| 1/16/03 | …we’re waiting for the stock market to give the thumbs-up. | -5.8% | -6.9% | -3.8% | 25.5% | + |
| 1/7/03 | …the speculative rebound has likely run its course. | 0.9% | -9.2% | -4.7% | 21.6% | + |
| 12/12/02 | A near-term market pause or pullback would be healthy – and not surprising…Richard Moroney’s recommended cash position remains at 25%. | -1.9% | 3.3% | -7.6% | 19.2% | – |
| 12/3/02 | With earnings prospects improving and the economy showing glimmers of renewed vigor, now is a good time to be looking for small-company growth stocks. | -1.8% | -1.3% | -9.9% | 15.3% | + |
| 11/26/02 | Of the portion of your portfolio allocated to equities for the long haul, hold 25% in money-market funds or short-term bonds as a hedge. | 0.5% | -4.2% | -8.3% | 17.2% | – |
| 10/14/02 | …the market’s primary trend [is] bearish under the Dow Theory. A defensive posture remains appropriate, and Moroney’s recommended cash position is being raised to 25%…view rallies as opportunities to raise more cash. | 6.9% | 4.9% | 10.1% | 24.8% | – |
| 8/2/02 | Stock prices eventually follow earnings, but expecting stock gains of even half of the projected profit increases is wishful thinking…many of the estimates sound overly optimistic. | 5.1% | 1.6% | 3.1% | 11.9% | – |
