Dow Theory

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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.
 
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!
 
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.
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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.
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http://seekingalpha.com/article/169562-market-update-seven-month-rally-is-getting-tired
 
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.”
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http://www.raymondjames.com/inv_strat.htm
 
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.
 
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.
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http://www.minyanville.com/articles/saut-dow-theory-sell-signal-waves-fibonacci-elliot-s&amp%3Bp-bear-bull-market-investors/index/a/25480
 
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.

View attachment 7497

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

View attachment 7498

Note the volume on both indicies.
 
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!
 
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.
 
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.
 
Bullitt said:
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.
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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?
 
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!

View attachment 8041
 
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.
 
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.
 
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.
 
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