Birchtree
TSP Talk Royalty
- Reaction score
- 143
Re: Birchtree's account talk
Just when you think you've had enough of Dow Theory here comes a little more with a different take on the situation. From my dear friends at Merrill Lynch by Mary Ann Bartels - Technical Research Analyst
"Dow Theory primary trend remains up. (What the hey). The active "buy" signal remains, by definition, in force. The day before Thanksgiving Day, the Dow Industrials closed below its August closing low while the Dow Transportations finished at levels not seen since September 2006. That has generated some conjecture that the Dow Theory flashed a sell signal.
The Dow Theory has no official rules. The case can be made that the Theory involves some subjectivity. That said, the basics are fairly straight forward. The first step is to identify the primary price trends of both the DJIA and DJTA. An uptrend is defined as a series of higher highs and higher lows (bottoms above bottoms); a downtrend is a series of lower lows and lower highs. Once the primary trend has been identified, it remains in force until proven otherwise. An uptrend is in place until a lower high is recorded, followed by a subsequent decline that breaches the previous low. Conversely, a downtrend remains intact until a higher low forms and then a subsequent rally breaks above the previous high. Once the primary trends are deyermined, the second step is to determine if the primary trends of the two indexes confirm one another.
There are two significant differences between what influenced Dow, Hamilton, and Rhea, and what influences analysts today. In the early 20th century, only closing data were available. Today, intra-day data are readily available, and there is more emphasis on shorter-term swings. While we do use intra-day data, we focus on weekly or even monthly high-low-close charts to determine the primary trend while avoiding the "noise" of daily swings.
With all of that in mind, we count the current Dow Theory buy signal to have been in force since late in 2004. Since then, the DJIA's primary uptrend reached an all-time high in October 2007. The DJTA's primary uptrend recorded its all-time high in July 2007, but its reaction rally high in October did not exceed the July high. As a result, Dow Theory did not give a sell signal before Thanksgiving. The primary trend for the DJIA is still up: its October high was higher than the previous high in July; its August low was a higher low than the prior low in March, and the intra-day low for the week of November 19-23 was well above August's intra-day low. By contrast, the DJTA's primary trend is down; its October high was lowrer than its July high, and its November 19-23 low was lower than it August low. Because the DJTA's downtrend has not been confirmed by the DJIA'a uptrend, the active buy signal remains - by definition - in force.
What is required to establish a new sell signal? The DJIA would have to establish a new downtrend (with a lower high and a lower low) and, in the process, penetrate the August intra-day low (12517). In the meantime, the DJTA would have to maintain its own primary downtrend. Until those events occur, the bulls will remain in control."
Just when you think you've had enough of Dow Theory here comes a little more with a different take on the situation. From my dear friends at Merrill Lynch by Mary Ann Bartels - Technical Research Analyst
"Dow Theory primary trend remains up. (What the hey). The active "buy" signal remains, by definition, in force. The day before Thanksgiving Day, the Dow Industrials closed below its August closing low while the Dow Transportations finished at levels not seen since September 2006. That has generated some conjecture that the Dow Theory flashed a sell signal.
The Dow Theory has no official rules. The case can be made that the Theory involves some subjectivity. That said, the basics are fairly straight forward. The first step is to identify the primary price trends of both the DJIA and DJTA. An uptrend is defined as a series of higher highs and higher lows (bottoms above bottoms); a downtrend is a series of lower lows and lower highs. Once the primary trend has been identified, it remains in force until proven otherwise. An uptrend is in place until a lower high is recorded, followed by a subsequent decline that breaches the previous low. Conversely, a downtrend remains intact until a higher low forms and then a subsequent rally breaks above the previous high. Once the primary trends are deyermined, the second step is to determine if the primary trends of the two indexes confirm one another.
There are two significant differences between what influenced Dow, Hamilton, and Rhea, and what influences analysts today. In the early 20th century, only closing data were available. Today, intra-day data are readily available, and there is more emphasis on shorter-term swings. While we do use intra-day data, we focus on weekly or even monthly high-low-close charts to determine the primary trend while avoiding the "noise" of daily swings.
With all of that in mind, we count the current Dow Theory buy signal to have been in force since late in 2004. Since then, the DJIA's primary uptrend reached an all-time high in October 2007. The DJTA's primary uptrend recorded its all-time high in July 2007, but its reaction rally high in October did not exceed the July high. As a result, Dow Theory did not give a sell signal before Thanksgiving. The primary trend for the DJIA is still up: its October high was higher than the previous high in July; its August low was a higher low than the prior low in March, and the intra-day low for the week of November 19-23 was well above August's intra-day low. By contrast, the DJTA's primary trend is down; its October high was lowrer than its July high, and its November 19-23 low was lower than it August low. Because the DJTA's downtrend has not been confirmed by the DJIA'a uptrend, the active buy signal remains - by definition - in force.
What is required to establish a new sell signal? The DJIA would have to establish a new downtrend (with a lower high and a lower low) and, in the process, penetrate the August intra-day low (12517). In the meantime, the DJTA would have to maintain its own primary downtrend. Until those events occur, the bulls will remain in control."
