Dow Theory -- a market timing strategy that has been followed by the aptly named Dow Theory Forecasts and has proven highly successful for over five decades -- remains bullish on the outlook for stocks.

The strategy is bullish when strength in the Dow industrials is confirmed by strength in the Dow transports, as well as in the Dow utilities (although the latter is less critical).

Says Charles Carslon, "Dow Theory is squarely in the bullish camp." The advisor also sees a contrary reason for bullishness.

He notes, "Rarely does such impressive share-price action meet with such skepticism. A broad market advance has carried nearly all the major averages to significant highs, yet many reporters and analysts seem convinced the stock market has it wrong."

With the primary trend bullish and quality stocks available at "reasonable valuations," he believes investors should keep only 5% to 10% of their equity portfolio in cash, while continuing to look for opportunities.

One large cap Dow stock that rank as a Dow Theory "long-term buy" is General Electric (NYSE: GE). He notes that GE shares have moved to their highest level since mid-January after an analyst report argued the conglomerate should spin off several businesses, citing NBC Universal, GE Money, and GE Real Estate.

He concludes, "The combination of a reasonable valuation, decent growth prospects, and above-average yield should generate market-beating returns over the next 24 to 48 months.

For more stock picks from the leading financial newsletter advisors, visit Steven Halpern's free daily website, TheStockAdvisors.com.

Dow's 'Theory' on GE originally appeared on BloggingStocks on Fri, 04 May 2007 13:43:00 EST. Please see our terms for use of feeds.