Guru Grades

Richard Moroney, Divining Dow Theory (Last Updated 2/26/10)

We evaluate here the market commentary of Richard Moroney via Zacks.com (supplemented from MarketWatch) since June 2002. Richard Moroney , editor of the Dow Theory Forecasts newsletter, is one of Zacks' "pros." 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 chart below extracts highlights from this commentary and shows the performance of the S&P 500 index over the 5, 21, 63 and 254 trading days after the publication date for each item. Red plus (minus) signs to the right of specific items indicate those that the market has subsequently proven right (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.
• Based on subsequent stock market performance and our judgments about the associated accuracy of Richard Moroney's timing forecasts, his bottom-line advice about market direction is right 54% of the time, above average. The forecast sample size for Mr. Moroney is relatively small because he only occasionally comments on overall market direction, so the confidence for this result is relatively low.

In summary, the accuracy of Richard Moroney's stock market forecasts, based on a small sample, is above average. Confidence in this conclusion is low.

See our blog entry of 11/4/05 for a carefully analytic evaluation of Dow Theory as a momentum timing strategy.

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.