Dow Theory

[Bullitt]

In case you were wondering where we are in the Dow Theory, this guy did an unbelievable job breaking it down for us. Awesome charts!

http://benbittrolff.blogspot.com/2007/11/dow-theory-hints-of-bear-market.html?referer=sphere_related_content

Of course, Dow Theory is subject to great debate...

[James48843]

Thanks for the link. Interesting reading!

The guy mentions the breakdown of the Dow Transports as being one of the reasons why those who say we are about to have a rally are wrong.

I'd say that the reason the Dow Transports are all down, has in very large part to do with the higher cost of oil. You can't drive trucks or fly airplanes as profitably if you planned for one price of oil, and now you've got almost double that price a year later. As this closing in on $100/barrel oil continues, we're going to have a lot of oil dependant companies showing lower profits, and with it, a decline in those company stocks.

We'll have to see how it all plays out.

Plan on more expesive shipping costs, and plane tickets.

[nnuut]

Thanks for the link. Interesting reading!

The guy mentions the breakdown of the Dow Transports as being one of the reasons why those who say we are about to have a rally are wrong.

I'd say that the reason the Dow Transports are all down, has in very large part to do with the higher cost of oil. You can't drive trucks or fly airplanes as profitably if you planned for one price of oil, and now you've got almost double that price a year later. As this closing in on $100/barrel oil continues, we're going to have a lot of oil dependant companies showing lower profits, and with it, a decline in those company stocks.

We'll have to see how it all plays out.

Plan on more expesive shipping costs, and plane tickets.
Expensive shipping cost have arrived. Inflation is alive in the price of energy!! BIG TIME!!
I priced sending some household items by Yellow Freight from Georgia to Las Vegas, forget it!
325 pounds for $1300.00 :mad: 2660

[James48843]

if you need to move 325 pounds to Vegas- you need this webssite:

http://www.uship.com

It's kind of like Ebay for shipping.

You put out there what you have to ship, and where is has to go to, and people bid how much they will charge you to take it.

[nnuut]

if you need to move 325 pounds to Vegas- you need this webssite:

http://www.uship.com

It's kind of like Ebay for shipping.

You put out there what you have to ship, and where is has to go to, and people bid how much they will charge you to take it.
Thanks James. I'll check it out. :D

[Pilgrim]

Recipe for a meltdown

The primary culprits behind the market turmoil are sky-high stock prices -- and it's only going to get worse, writes Fortune's Shawn Tully.

Analysis worth reading.

http://money.cnn.com/2007/11/27/news/economy/tully_meltdown.fortune/index.htm?postversion=2007112804

[Bullitt]

Times getting bad? Missed quarterly estimates? Sales down? Just blame subprime mortgages! I mean, what else could it be? They compose a whole 5% of American mortgages. Realistically, how much more is the average American spending in gas for their vehicle monthly? $20 tops?

People say these things because they hear it in the media or they hear their co-workers talk about it around the water cooler. Smart Money is the Dow Theory. Smart Money is buying at these levels.

[weatherweenie]

[quote=Bullitt;134791]Realistically, how much more is the average American spending in gas for their vehicle monthly? $20 tops?
[quote]

Guess I'm above average, as I'm spending $20 more per fill up. I fill up every 7-10 days. :notrust:

[Frixxxx]

Guess I'm above average, as I'm spending $20 more per fill up. I fill up every 7-10 days. :notrust:

I ride a motorcycle for my work transportation. 5 day work week. Prices averaged from my QUICKEN budget.

2004 I was paying $1.74/g * 5 gallons = $8.70 a week
2005 ------------ $2.30/g * 5 gallons =$11.50 a week
2006 ------------ $2.80/g * 5 gallons =$14.00 a week
2007 ------------ $3.10/g * 5 gallons =$15.50 a week

This is the only item in my budget that has gone up 200+% since 2004.:cool:

[Bullitt]

Well, what can I say? You guys proved me wrong. At least we're lucky enough to get that federal pay increase every year along with locality pay increase every now and then. Without that I'd probably be 'living in a van down by the river' with Matt Foley as my only neighbor.

[hessian]

Hey Bullitt,
Apparently you don't work for DoD. I'm on the new NSPS (with Navy). No guarantees here! All based on "performance" - yeah right! Supervisors being told to give everyone "3s" (on "5" scale), regardless of performance.

They can also pass on no increases- if funds are not there. Most recently, I've heared Sec'y Gates may be handing Army civilians "pink slips" to maintain funding for Iraq war.

Its a brave new world!
And, don't get too comfy - because I hear other Fed gov't may follow!!!
VR

[Bullitt]

Another article about the Dow Theory being subject to interpretation.

http://www.financialsense.com/Market/wood/2007/1130.html

[Bullitt]

"...at that time the existing Primary bearish trend may be trying to change. But, until such time there is simply no evidence, in accordance to classical Dow theory, to support any claim that the Dow theory has turned or is turning bullish at this time." Tim Wood, www.cyclesman.com (http://www.cyclesman.com)

Richard Moroney, author of Dow Theory Forecasts Newsletter, is an avid follower of the Dow Theory. He still recommends that his readers keep 25-30% in cash until the Dow Theory triggers a buy signal. www.dowtheory.com/ (http://www.dowtheory.com/)

I'll keep you posted....

[Bullitt]

The magic number we're looking for here is 12,743. Since the Transports put in a high above February's high, the Industrials need to confirm with a close above it's February 1st closing price. This move would, in theory, confirm a new uptrend in the general market. It would not signal an end to the Bear Market Signal under Dow Theory.

www.dowtheory.com (http://www.dowtheory.com)

[clester]

I ride a motorcycle for my work transportation. 5 day work week. Prices averaged from my QUICKEN budget.

2004 I was paying $1.74/g * 5 gallons = $8.70 a week
2005 ------------ $2.30/g * 5 gallons =$11.50 a week
2006 ------------ $2.80/g * 5 gallons =$14.00 a week
2007 ------------ $3.10/g * 5 gallons =$15.50 a week

This is the only item in my budget that has gone up 200+% since 2004.:cool:
An analyst on CNBC said gas would go to $4 by summer:mad:

[Bullitt]

The magic number we're looking for here is 12,743.

Transports keep storming higher even though the front page news and coffee break talk is usually about how bad the economy is, Allegedly.

Confirmation of a new bullish uptrend at 12,743 is just within reach...

[Bullitt]

Confirmation of a new bullish uptrend at 12,743 is just within reach...

Unless your MO is buying the top and selling the bottom, disregard the headlines and turn off CNBC.

New Buy Signal under the Dow Theory will be triggered today at the close.

[Bullitt]

Depending on who you get your Dow Theory information from, we're either in a pullback from a prior buy signal or we never got a buy signal in the first place! The bullish Dow Theorists claim a retracement to 12300-12400 should be expected and recommend some small cash positions for additional buying on weakness at those levels. The other side says that the Dow Theory never gave a buy signal in April.

I don't know, somebody's right, somebody's wrong. It's amazing how many different interpretations of a basic theory there can be.

[Bullitt]

Nothing much changed in the Dow Theory. Depending on who you read, they are either treating this as a pullback or a major bull trap.

Most seem to agree that the break of the lows in the Dow caused a non-confirmation of a new bearish trend. In other words, if the Transports break their Jan. lows, the primary downtrend is confirmed, and who knows when it will end.

Dow theory is not a very difficult concept, but the opinions gyrate from newsletter to newsletter. Here's a list of Dow Theory Newsletters along with their CXO ratings if anyone is interested in any further reading. After a while, you might just end up establishing your own Dow Theory opinion.

1. Dow Theory Forecasts www.dowtheory.com (http://www.dowtheory.com) (Richard Moroney)
the accuracy of Richard Moroney's stock market forecasts, based on a small sample, is just above average. Confidence in this conclusion is low.

2. Cyclesman www.cyclesman.com (http://www.cyclesman.com) (Tim Wood)
Tim Wood's stock market forecasting accuracy since April 2003, generally focused on a long-term bull-versus-bear contest, is somewhat below average. Confidence in this conclusion is fairly high.

3. Dow Theory Letters www.dowtheoryletters.com (http://www.dowtheoryletters.com) (Richard Russell)
Richard Russell is well below average in predicting stock market behavior. Confidence in this conclusion is moderate.

[JTH]

After a while, you might just end up establishing your own Dow Theory opinion.

Thanks for the links Bullitt, I've been wanting to do some reading on this subject. :D

[Birchtree]

Richard Russell is suggesting that, far from condirming that a bear market is in progress and presaging further market weakness, a close in the Transportation ZAverage below its January low (4398.97) might instead signal that the market's decline is about over. I would keep a close eye on the Utilities.

[Bullitt]

Richard Moroney from Dow Theory Forecasts posted a sample of his most recent newsletter, Dow Theory Forecasts, in Barron's this past weekend.


How Much Cash to Stash
Dow Theory Forecasts by Horizon Publishing
7412 Calumet Ave., Hammond, Ind. 46324

July 21: Our recommended cash position depends on the market's primary trend and the opportunities we see in individual stocks. While it has become difficult to argue that the market's trend is up, the values available in the market appear more attractive than they have been in years. Good values can become better values, and we would view a breakdown in the Dow Transports below the March low of 4,398.97 as a reason to raise our cash position. But for now, we still see reasons to keep our cash position at 15% to 20%.


The Transports have not confirmed the bearish trend. With a close in the Transports below 4,398.97, both the Dow Industrials and Dow Transports would be trading below prior significant lows -- and the validity of the April bull-market signal would be in question. Without new lows in the Transports, recent action represents divergence -- a reason for caution, but not a clear indication under the Dow Theory. [The Dow Transportation Average was recently at 4,916]....


High-quality growers are trading at attractive valuations. The average trailing price/earnings ratio of S&P 1500 stocks has dropped close to 18, a 13-year low. The average company's earnings growth has held up well, partly because of continuing strength in energy and technology...Going forward, the size of our cash position will hinge importantly on whether energy and tech can maintain their operating momentum -- and whether other sectors can deliver improved growth.

-- Richard Moroney
http://online.barrons.com/article/market_watch.html

www.dowtheory.com (http://www.dowtheory.com)

[Bullitt]

Quick little update on where we stand in Dow Theory Land....

On the DJIA we're watching the July lows of 10,962 and the Transports we're watching for a break of 4,653 which would signal a new bearish trend.

Richard Russell, another Dow Theorist, has this to say about the July lows.


All the above are in favor of the bear market designation. The action has not been typical bull market action. If we are in a bear market, then following the current rally, the market will turn down again to test, and probably violate, the July l4 lows (Dow 10962.44).http://www.gold-eagle.com/gold_digest_08/russell081108.html

Like always I guess we'll have to wait and see!

[Bullitt]

Yesterday gave a Dow Theory non-confirmation sell signal. DJIA broke the prior lows, but the low wasn't confirmed by the transports. It will be interesting to see whether or not yesterday qualifies as an actual break of the lows after today registered such an enormous accumulation day. One would think it would, but stranger things have happened.

On a side note: This day, 9/16/08, may have possibly been the highest volume day ever on the NYSE.

[Bullitt]

Regardless of what the market did today, Dow Theory triggered a new bear market signal yesterday at the close. The Transports just couldn't carry the weight any longer. I'm sure the bears are saying, I told you so, but that's largely irrelevant when following a systematic trading system. Both the Transports and Industrials will need to make higher highs to get back to bullish mode. While it depends on who you follow for Dow Theory, the bear market signal usually means it's a good time to be building up cash by whatever means necessary.

This should be interesting, the last bear signal was triggered in 11/07, if I'm not mistaken, and the markets got hit pretty hard for months thereafter. Dow Theory did get anyone into the nice 10%+ rally we had from March to May after confirmation from both the Transports and Industrials.

[Birchtree]

With a close below 4398.97 in the Transports, both the Industrials and Transports would be trading below prior significant lows - and the validity of April's bull market signal would have to be questioned. We closed at 4503.89 with an intraday low of 4440.80 on the Transports. Richard Russell has stated previously, that far from confirming that a bear market is in progress and presaging further market weakness, a close in the Transportation Average below its January low might instead signal that the market decline is about over. So we are still on a secondary nonconfirmation of the decline. If the Industrials rebound to close above 13,058.20 and the Transports close above 5492.95, the bullish trend would be reconfirmed. How long will I have to be patient?

[Bullitt]

Jack Schannep is sticking to his buy signal from 10/7 which he admits in hindsight was a bit early. I don't understand his models or what correlation he has to the Dow Theory, but he masquerades as a Dow Theorist nonetheless.

See his latest prophecy at Marketwatch (http://www.marketwatch.com/news/story/dow-theorist-schannep-stomped-not/story.aspx?guid=%7B08F1B8E1-8F41-4A7B-81AE-729294EA8C30%7D&dist=msr_1)


From now on I believe we will want to be mostly in stocks for most of the time. A confirmed Bull market isn't that far away: plus 19% on the Dow would be at 9,730 and the S&P at 1,102 ... It looks like the month of October has once again been a "bear killer" for the seventh time out of the last 26 bear markets -- an extraordinary 27% of all bear markets have ended in just that one month.Mr Schannep has challenged all other alleged Dow Theorists since 1998 to compete with his Dow Theory models. According to CXO Advisories, he's takes first place with a 64% accuracy.

You can see the history of his calls at www.thedowtheory.com (http://www.thedowtheory.com).

It's interesting to note that all other Dow Theorists that I follow have either moved to recent sell signals or are still sitting on the Lilly Pad predicting more of the same.

[Bullitt]

The Transports did give a non confirmation in early Feb with the break of the November lows. The Industrials failed to confirm this downtrend, hence the term non-confirmation. Transports are showing a MACD divergence and may be gearing for a rally here.

Nearly every Dow Theorist seems to have a different criteria, but it appears that right now, if both the Transports and Industrials can break their early January highs, we can assume the market is in bullish territory. That would equate to around 9050-9100 in the Industrials and around 3700-3750 in the Transports.

A good indicator here is the Oil service stocks. Oil service stocks tend to lead the price of oil and the stocks have been making higher lows since December. Positive moves in Oil should eventually relate to positive moves in the Transports.

Dow Theory is a mechanical trading system that removes emotions. It's either bearish or bullish/buy or sell. For the record I would like to add that I'm currently as bullish as I was in early March 2008 in regards to the general market. A Dow theory buy is a bit of a ways off, but I see less risk on the long side than short side at this point. For those who read the daily charts and 5 minute tickers in search of the holy grail or are just looking to make that 1-2% on an in/out trade, I think it's time to take a step back and observe the forest, not the leaves. I truly believe that a run to 1050-1100 SPX could happen by springtime. It's not going to be a straight shot and I expect chartists to get hammered along the way with whipsaws just as any chartist has been hammered in the gold sector since the November lows.

Beware the PPT but more importantly, beware the Men in Black. I hear they've been active lately and I don't want to hear of anybody on this website getting abducted by them.

[Bullitt]

The break in the lows of the Dow came today. Richard Russell seems to think this is the end with a target of 6500.

This sell signal appears to be a better fade to me than a chance to sell, or sell short. Too many people watching those lows in the Dow, but hey, Dow Theory is a mechanical trading system and mechanical trading systems are there to take the emotion out of the game.

[Bullitt]

Dow Theory signals a new buy signal yesterday with it's confirmation surge after the break of the pivot line. For those who say, "It's manipulation, the market is rigged, the internals stink, the economy is terrible....", this is why there are things called systems. A chartist doesn't care what the economy is doing and neither should you.

[Intrepid_Timer]

Dow Theory signals a new buy signal yesterday with it's confirmation surge after the break of the pivot line. For those who say, "It's manipulation, the market is rigged, the internals stink, the economy is terrible....", this is why there are things called systems. A chartist doesn't care what the economy is doing and neither should you.


Hmmmm, all my indicators just gave me a "sell,sell,sell!!" signal today. At least for the next 3 days. Guess we'll see..........;)

[Guest2]

This is the problem. The left side of the brain says; "SELL" while the right
side says; "BUY". One person gets a "SELL SIGNAL" the other a "BUY".

[tsptalk]

Prior Dow Theory Signals:

Short 1/25/90
Long 6/4/90
Short 8/17/90
Long 1/18/91
Short 8/21/92
Long 2/3/93
Short 3/30/94
Long 2/13/95
Short 7/15/96
Long 11/11/96
Short 8/4/98
Long 1/6/99
Short 9/23/99
Long 6/6/03
Short 11/21/07
Long 7/23/09

Source: http://www.robertwcolby.com/dowtheory.html (http://www.robertwcolby.com/dowtheory.html)

[Bullitt]

Good link there showing the prior DT Signals.

As of today, we've got about 2,500 points until the next sell signal, so I don't see this changing any time soon.

[dpmp]

Good link there showing the prior DT Signals.

As of today, we've got about 2,500 points until the next sell signal, so I don't see this changing any time soon.

"Sell signal" as in a major pullback (or a crash)?

I am trying to figure out how to identify the timing/level of the Dow but have no clue. Could you elaborate? Thx

[Bullitt]

If we can assume that the averages discount everything, then Dow Theory is really only a way to confirm a trend in the markets. Currently the trend is up and making money on the upside is much easier than the downside. On uptrends, dips are considered buying opportunities. Spikes up in a downtrend are considered shorting opportunities. No great shakes, no secret formulas here.

The Transports give an idea of how much product is being delivered/consumed while the Industrials give an idea of production. Honestly, I have my doubts, but it does have a remarkable track record depending on how it is interpreted. For example, where does Tech figure in on the theory? Also, a basket of 30 stocks is pretty easy to manipulate in today's world, especially when more than a few are trading below $20 a share. Most every Dow Theorist also tends to have a different set of rules in determining whether the trend is up or down.

Dow theory does give minor signals periodically as it did in March 2008, and again a sell on October 2008, but the list of buys/sells that Tom posted on the 24th seems to capture the major trends. It's hard note to not take of the buy generated 6/6/2003 and the sell on 11/21/07. (If only I would have listened....) http://www.robertwcolby.com/dowtheory.html (http://www.robertwcolby.com/dowtheory.html) was a pretty good website and I would recommend reading it. I also attached an article from Arthur Hill.

[Birchtree]

Some really good information on Dow Theory. I'm waiting on the transports to flash 3717 and then I'm going to spend some hefty dollars. Long live the bull market.

[Bullitt]

Moroney doesn't believe that the Dow Theory issued a new buy signal. He's a stockpicker and rarely goes more than 30% cash. The most he's gone to cash was during the last major sell signal in which he was about 40% cash.


Will economically sensitive companies deliver the huge profit gains forecast for next year? Will P/E ratios return to levels above long-term norms? Though we're skeptical on both counts, we could be persuaded.

We'd like to see today's bullish consensus tested by meaningful corrections in the industrials and transports, followed by rebounds to new highs as investors discount an improving profit picture. In the meantime, we're holding about 30% of equity portfolios in a short-term bond fund and emphasizing modestly valued shares of reliable growers with the other 70%.
http://www.forbes.com/2009/08/28/william-peter-hamilton-personal-finance-investing-ideas-dow-theory.html

[Bullitt]

Yesterday the Industrials closed at a higher high, confirming the higher high also put in by the Transports. The volume of the break higher in the transports was the second highest since early June.

The uptrend remains intact with no signs of stopping according to Dow Theory.

[Bullitt]

Richard Russell is front running the Dow Theory system which is still no doubt in bull mode.


I'm removing the bull from the box. With the Industrials, Transports, Utilities and S&P all ‘rolling over,’ I'm thinking that the counter-trend rally from the March low is in the process of topping out. The Dow has declined six out of the last seven sessions; and, the MACD is on a well-defined sell-signal.http://seekingalpha.com/article/165262-dow-s-biggest-declines-why-october-should-be-a-four-letter-word

[Bullitt]

The bull move was confirmed by the Transports at the close yesterday and held at support today.

Anybody calling a top here is just guessing. There aren't any signs of a trend reversal according to Dow Theory.

[grandma]

Spaf put out some great lessons on using the Dow, back before the system changed. I would suppose that it would still be pertinent, but have no idea if Tom can drag the thread up - if it was so indicted to do so. Whatever `took' for me at that time, is hidden deeper than the posts!

[Bullitt]

No signal either way, just another non confirmation. Some Dow Theorists feel a big move in the opposite direction is about to occur when the averages make strong confirmation moves which fail, such as the one we saw on 10/15/09.


Remarks by Dow Theory Letters' Richard Russell, he points to weakening momentum in the Dow Industrials, Transports and Utilities (That's a falling MACD to technical cogniscenti, or the Moving Average Convergence-Divergence, a comparison of moving averages over different periods.) The S&P 500 shows a similar pattern. In addition, Russell points to a rising number of "distribution days," when the market averages are down on higher volume, implying shares are being off-loaded with growing urgency. Over the past two weeks, there have been nine distribution days for the S&P, eight for the Dow, seven for the New York Stock Exchange Composite and six for the Nasdaq, he notes.
http://online.barrons.com/article/SB125667716785411189.html

Stephen Leeb:
The other glaring indication of what may be coming down the pike can be seen in the action in the Dow Transports. Long ago, Charles Dow popularized his Dow Theory, which in essence views the market as healthy when both manufacturers (the Industrials) and shippers (the Transports) are rising in tandem. Divergences between the two should set off alarm bells. So while the Industrials have managed to claw their way back above 10,000, the Transports have tried and failed to surpass their mid September highs, tracing out a double top formation in the process.http://seekingalpha.com/article/169562-market-update-seven-month-rally-is-getting-tired

[Bullitt]

Dow Theory Sell Signal? You be the judge.


“The secret of the direction of the great primary trend of the market lies in the secondary reaction and what happens AFTER a secondary reaction. A secondary reaction usually takes three weeks to three months in duration while correcting one-third to two-thirds of the previous move. Since the March low, we have yet to experience a true secondary reaction. And I'm wondering whether we could be on the edge of a secondary reaction now. Following a secondary (reaction), if BOTH Averages (Industrials and Transports) rise to new highs, the primary trend is taken to be bullish. Following the lows of a secondary reaction, there will be a rally. If (that) rally fails to take both Averages to new highs, and the Averages then turn down and break to new (reaction) lows, the primary trend is taken to be as bearish. Secondary reactions often start with one of the Averages sinking while the other Average continues to the upside.”http://www.raymondjames.com/inv_strat.htm

[Birchtree]

From Richard Russell: "The primary trend of the stock market and the economy remains bearish. The advance from the March lows represents a correction or a rally in the bear market. If this is indeed a rally in a continuing bear market, then in due time the Dow and the majority of stocks will decline and violate their March lows. If both the Industrials and Transports violate their March lows, it will be a signal that the primary bear market has been confirmed. However, if both Averages dec;ine, and then rise to new highs, this will be a very bullish indication. It will be a sign that I have been wrong, and that we are probably in a bull market." The Dow would have to drop back to 6547 and the Transports would have to drop to 2147. Run like hell if it happens.

[Bullitt]

Good point. Dow Theory doesn't give too many buy/sell signals.


Finally, if you're expecting new lows (I'm not) below the March 2009 levels, my response is that given the fact that Dow Theory gave a "sell signal" in September 1999, a "buy signal" in June 2003, another "sell signal" in November 2007, and while it didn’t render another "buy signal" until July 2009 I did indeed target the March lows, I feel pretty confident that if that level (March 2009 low) was going to be violated, we would be able to identify it prior to it occurring.http://www.minyanville.com/articles/saut-dow-theory-sell-signal-waves-fibonacci-elliot-s&amp%3Bp-bear-bull-market-investors/index/a/25480

[Bullitt]

Just a quick update to see where we are in Dow Theory:

DJIA remains in uptrend, clearly above the breakout from 11/9. Support at 10,100.

7497

TRAN confirmed the uptrend on Friday, despite the bearish hoopla. Support at 4050.

7498

Note the volume on both indicies.

[mick504]

I just wish something would happen....either up or down...don't care! Just don't like to be in the 'waiting game' doing nothing but in G. Where's all the jobs in this big Obama jobs summit...meeting whaterver. Do something....where's the beef!

[Bullitt]

Mick, the whole point of this thread is to capture the big picture within the micromanaged minute to minute "news feeds" that we as Americans have become slaves to. Dow Theory, though subject to debate, is one such way to filter out the vast amount of interference and noise in the day to day investing environment.

Bottom line: Dow Theory has said this is a bull market for months now.

[Bullitt]

While the world focuses on Tiger Woods, and other absolutely moot political topics, the market continues marching on without them. Let there be no doubt- this uptrend is still intact.

7634

7635

[Bullitt]

Uptrend is still intact indeed, but Transports look to be struggling here and Industrials still defy gravity. I see a big move up or a good correction down any day now based off internals and simple MACD. A big move up would, in my opinion, be the blow off top all bulls seem fearful of missing while a correction would most likely be the final buying opportunity before this cycle peaks. Either way, I hate to say it, the 'waiting for a dip to buy' folks won't buy and the 'waiting for a blow off top to sell' crowd won't sell. Let's be honest here.

I can see this market being propped up a bit longer with new money coming in for Roth IRA contributions and the tax refund season. However, there has been major distribution in this market over the past 2-4 weeks. If you're playing around for that maniacal, upward blowoff top that investment fantasies are made of, just be sure to hit the sell button before getting too caught up in it if it does arrive. Unfortunately, most blow off tops are recognizable in hindsight only since the news will support the move in it's entirety.

As far as Dow Theory is concerned, my words are mere speculation on my part. Dow Theory remains in an uptrend, and pullbacks should be bought until a trend change takes effect.

[JTH]

Uptrend is still intact indeed, but Transports look to be struggling here and Industrials still defy gravity. I see a big move up or a good correction down any day now based off internals and simple MACD. A big move up would, in my opinion, be the blow off top all bulls seem fearful of missing while a correction would most likely be the final buying opportunity before this cycle peaks. Either way, I hate to say it, the 'waiting for a dip to buy' folks won't buy and the 'waiting for a blow off top to sell' crowd won't sell. Let's be honest here.

I can see this market being propped up a bit longer with new money coming in for Roth IRA contributions and the tax refund season. However, there has been major distribution in this market over the past 2-4 weeks. If you're playing around for that maniacal, upward blowoff top that investment fantasies are made of, just be sure to hit the sell button before getting too caught up in it if it does arrive. Unfortunately, most blow off tops are recognizable in hindsight only since the news will support the move in it's entirety.

As far as Dow Theory is concerned, my words are mere speculation on my part. Dow Theory remains in an uptrend, and pullbacks should be bought until a trend change takes effect.


Good post Bullitt it sums up the reality of this market. My vote still resides with a correction after earnings are over. Perhaps another March bottom?

[Bullitt]

Market warnings have been abound for at least two weeks now and finally the internals are catching up to the Indexes. Dow Theory doesn't care about moving averages but I kept the 50DMA in there for two reasons. 1. Dip buyers just got hammered today and 2. If you're a bull, you can't be happy about the way the Transports cut thru the 50DMA like a knife slicing warm butter.

Take heed to the bearish divergence!

8041

[Bullitt]

Yep, let there be no doubt, the uptrend relentlessly charges higher as more and more bulls climb 'over the top' when they hear the Monday market whistle.

Another buy signal was generated the week of April 12-16. Not a buying opportunity signal, but a confirmation of the trend nonetheless.

[Bullitt]

It's been a while.

Like I've said before, there are many interpretations of Dow Theory with the only one right being the one we call in hindsight. Right now, I'm calling the July lows in DJIA and TRAN as the line to watch.

DT doesn't care about technical analysis but it seems to give warnings prior to DT signals when done with basic indicators. I can't help but to notice a few things.

1. Big H&S pattern in both DJIA and TRAN from Dec2009 until now.
2. Smaller H&S pattern in both from June 2010 until now.
3. Looks like the right shoulder in the smaller H&S patterns are rolling over. Selling pressure at 200DMA line.

However, DT works best when one does not front run signals. When we get closer to the signal, I expect media attention like that of the Hindenburg Omen.

[KevinD]

Dow Theory Update
By Tim W Wood CPA09/21/2011

http://www.financialsense.com/contributors/tim-wood/2011/09/21/dow-theory-update

[Bullitt]

Transports never did make new high as they should have to confirm the uptrend in Industrials. With the market in a correction, a signal change to sell could occur in Dow Theory. Looking at the oscillators and weekly charts, stocks have a few weeks before any indicator can trigger an oversold strong buy. A resolution either way is not happening any time soon, so until then we're just treading along somewhere in the middle. Must be Summer.

[Bullitt]

As was the case with the 1968 and 1973 high, and every other major top since 1896, once the DNA Markers setup, this rally will be capped and the secular bear market will resume. In the meantime, this rally continues to convince the masses that all is well and in the process a much much larger trap is being set.
Dow Theory Buy? | Tim Wood | Safehaven.com (http://www.safehaven.com/article/29216/dow-theory-buy)

[Bullitt]

Dow Theory sell signal happened on Thursday, 8/20.

[Bullitt]

The Bottom Line: The Dow Jones Transportation Average has failed to break out, setting off a Dow Theory red flag that could presage much lower prices.

https://www.investopedia.com/dow-theory-could-signal-broad-based-decline-4797082?utm_source=twitter&utm_medium=social&utm_campaign=shareurlbuttons

[Bullitt]

I'm inclined to say Dow Theory is now signaling a bear market after cracking the February 28 low. Rules generally say it must make a significant low, rally at least 3%, then break down past the previous low. This would mean the trend is now down and bear market rules apply.

Some theorists would consider the December 2018 or even the 2009 low to indicate the death of the secular bull. By that time, does it really matter?

20% is a bear market definition loosely comes from the WSJ in 1990 when markets cratered during Desert Storm. Ironically, that bear market call turned out to be right near the low. Jack Schannep, a very successful Dow theorist, defines a bear market a 16% drop in both the Dow and S&P 500 over a period of time when it comes with his secondary signals which are for the most part, an art.

[Bullitt]

Looking like today gave a Dow Theory buy signal in DJIA. Looking for confirmation from transports.

[Bullitt]

Transports confirmed uptrend yesterday.

Meanwhile, 50% of AAII is bearish and the guessers are still waiting for "healthy retest" to get back in. Two questions:

1. Will you really get back in if the market goes down 10% from here? I mean it, really. It's so easy to say now, but the news will be pretty dire if the market goes down 10% from here.
2. What is your plan if the bottom is already in?

[Bullitt]

Dow theory validated the current bull market as both DJIA / TRAN made new cycle highs at the close today. Both managed to make these new cycle highs after their respective secondary reactions lower.

Dow theory gave an initial buy signal on 4/6.

[Bullitt]

Still on April 6 buy signal.

Transports and DJIA now both above 200 DMA.

Outlook: Uptrend jeopardized on a close below 25k DJIA and 8750 in TRAN. New high above recent June cycle would only confirm uptrend.

[Bullitt]

Still on a buy signal, as transports are holding up.

DJIA is in a secondary reaction lower with a measured move to 26,500. Below 26,500 would be time to re-assess since the transports will surely be dragged lower.

[Bullitt]

Watching 33,300 (4-5% drop lower) on the DJIA for a sell signal. Transports have already given a non-confirmation sell.

[Bullitt]

My interpretation is we had a non-confirmation bear market signal from Transports as it reached 14,500, but Industrials did not confirm the move lower.

Transports reversed and made a new secondary reaction high this week. Industrials confirmed this move. Long term bull market still intact, short term correction is over.

51565

In addition, the Head and Shoulders pattern in the DJIA has been negated. This often leads to large bullish moves.

51566

[Bullitt]

There were some holdouts who said it's not a dow theory buy until both averages make new highs. Okay then, yesterday Transports made new highs thanks to the pump and dump ramp manipulators at reddit. They managed to drive Avis 108% higher which resulted in a 6%+ gain in the transports.

[Bullitt]

Dow Theory bullish signal is hanging on a string. DJIA is sitting on support with any move lower giving a secondary bear reaction. TRAN still has around 8% downside wiggle room before turning bearish.

S&P is looking bearish with the break of the March low. Nasdaq is already in bear market territory down around 24% from the highs.

[Bullitt]

With today's transports getting hammered and dropping below the September 2021 low, Dow Theory is fully bearish, aka, bear market. I would expect further capitulation/panic selling to arrive next.

[Bullitt]

Close to a buy with today's DJIA close, but still will need confirmation from Transports to end the bear market according to Dow Theory.

We'll want to see a close around 14,600 in the Transports and close above 34,500 in the Industrials in the next few days.

[Bullitt]

Correction to previous post. We'd need a close above around 15,600 in Transports.


We'll want to see a close around 14,600 in the Transports and close above 34,500 in the Industrials in the next few days.

Transports still about 1,000 points away and Industrials are just 100 points away.

Inverse H&S (bullish) on weekly Industrials and sitting near the break line on the close.

[Bullitt]

Buy signal will be confirmed by industrials and transports if we close the day at current or higher levels.

[Bullitt]

Crazy thought, but DJIA has been forming a base since February 22 and currently is sitting right around the buy point at the 39,250-39,300 area.