Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
THEY DON'T RING THE BELL AT THE CRPTO MARKET TOP! - 20th Dec 24
CEREBUS IPO NVIDIA KILLER? - 18th Dec 24
Nvidia Stock 5X to 30X - 18th Dec 24
LRCX Stock Split - 18th Dec 24
Stock Market Expected Trend Forecast - 18th Dec 24
Silver’s Evolving Market: Bright Prospects and Lingering Challenges - 18th Dec 24
Extreme Levels of Work-for-Gold Ratio - 18th Dec 24
Tesla $460, Bitcoin $107k, S&P 6080 - The Pump Continues! - 16th Dec 24
Stock Market Risk to the Upside! S&P 7000 Forecast 2025 - 15th Dec 24
Stock Market 2025 Mid Decade Year - 15th Dec 24
Sheffield Christmas Market 2024 Is a Building Site - 15th Dec 24
Got Copper or Gold Miners? Watch Out - 15th Dec 24
Republican vs Democrat Presidents and the Stock Market - 13th Dec 24
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Awaiting Signal for the Resumption of the Bearish Primary Stock Market Trend

Stock-Markets / Dow Theory Feb 24, 2008 - 10:17 AM GMT

By: Tim_Wood

Stock-Markets Best Financial Markets Analysis ArticleSince the rally out of the January lows began, I have heard it said on numerous occasions that the strength of the Transports somehow has bullish undertones and implies that the decline is over. The overall spirit of the comments I have been hearing has to do with the fact that the Transports have recovered more than the Industrials. I have also heard that some are saying we now have a Dow theory non-confirmation in place. None of these comments or interpretations are correct in regard to traditional Dow theory.


In addressing this issue I can quote from the original writings of Robert Rhea himself. If you are not familiar with the Dow theory lineage, then you should read the brief article posted at www.cyclesman.com/Articles.htm titled The History Of Dow Theory giving you this background.

According to Hamilton and Rhea, " Under Dow's theory the primary trend, once authoritatively established as bullish, is considered to be continuing in force until negated." The opposite would of course be true once the trend is authoritatively established as bearish. According to Dow's theory, on November 21, 2007 the Primary Trend was confirmed as being bearish. I can assure you that nothing has occurred to negate this bearish trend. In the chart below I have plotted the Industrials in the upper window and the Transports in the lower window.

Following the August Secondary Low Point, the Industrials moved into their October all time high while the Transports lagged. This in turn created a non-confirmation in association with the October all time high and is noted with the blue trend line on the chart above. This non-confirmation then evolved into a confirmed primary bearish trend change on November 21, 2007 when both averages closed below their August Secondary Low points. This break is noted in green on the chart above.

At that time I warned that a short-term low was near and that as a result many would question the November 21 st Primary Trend change and that is exactly what happened as the markets rallied into the December highs. Anyway, once that rally failed the Primary bearish trend resumed and was reconfirmed by the decline below the November 21 st Secondary Low Point, which is noted in red on the chart above. The fact that the Transports have rallied back above their previous Secondary Low Point or as far as they have is of no consequence at this time because nothing has occurred to negate the Primary bearish trend that was established on November 21 st . Therefore, this trend has to be considered still in force.

Furthermore, the suggestion or interpretation that there is currently a non-confirmation in place because the Transports bottomed 2 trading days before the Industrials is a misinterpretation of non-confirmations. So, in regard to the Transports making their most recent closing low on January 17th verses January 22nd for the Industrials, here it is from Robert Rhea himself.

"It is by no means necessary, as experience shows, that the low or high point of a Primary movement should be made in both averages on the same day."

Rhea goes on to say "The two averages may vary in strength, but will not vary materially in direction especially in a major movement."

Here's another quote on this matter from Mr. Rhea, "It is not necessary for the rails and the industrials to confirm each other in extent of movement, nor is it required that they confirm in duration; nevertheless, while we may disregard the extent of a rally (or decline), and while we may ignore, to a degree, the time required for a movement, it is necessary for these formations to confirm each other, both in direction and in the penetration of preceding critical high or low points."

I could go on and on with more quotes from the Dow theory founding fathers, but there is no need. The bottom line here is that the Primary bearish trend was confirmed on November 21, 2007 and was last reconfirmed at the January lows. Furthermore, the price movement since the January lows has not negated the previously established Primary bearish trend. Thus, that trend is still considered to be "in force." Should the up turn out of the January lows further evolve to the point that the Primary Trend has changed or should a legitimate non-confirmation form, warning of a possible trend change occur, then 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.

Now the question at hand is whether or not the rally out of the January lows has run its course. The short answer is, we can't tell just yet. This is where extreme disciple and patience are required. I think it was Robert Rhea that once said "playing the markets required the patience of a dozen men." This is certainly one of those times. My intermediate-term Cycle Turn Indicator is key. This indicator is designed to identify important intermediate-term trend changes. This indicator identified the 1929 top and the crash that followed as well as the top of the 1930 rebound and beginning of the decline into the 1932 low. It also called the 1987 top beautifully. Point being, if it called these major declines, then odds are it will signal any major decline in the present. If/when the intermediate-term Cycle Turn Indicator turns back down it will set the stage for the Primary bearish trend that began in November to resume. Until such time, this counter-trend rally remains intact.

I have begun doing free Friday market commentary that is available at www.cyclesman.com/Articles.htm so please begin joining me there. Should you be interested in more in depth analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator, which has done a fabulous job, on stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more, those details are available in the newsletter and short-term updates. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week.

By Tim Wood
Cyclesman.com

© 2007 Cycles News & Views; All Rights Reserved
Tim Wood specialises in Dow Theory and Cycles Analysis - Should you be interested in analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator as well as coverage on the Dow theory, other price quantification methods and all the statistical data surrounding the 4-year cycle, then please visit www.cyclesman.com for more details. A subscription includes access to the monthly issues of Cycles News & Views covering the stock market, the dollar, bonds and gold. I also cover other areas of interest at important turn points such as gasoline, oil, silver, the XAU and recently I have even covered corn. I also provide updates 3 times a week plus additional weekend updates on the Cycle Turn Indicator on most all areas of concern. I also give specific expectations for turn points of the short, intermediate and longer-term cycles based on historical quantification.

Tim Wood Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in