Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Dow Theory and Stock Market Update

Stock-Markets / Dow Theory Aug 11, 2007 - 11:46 AM GMT

By: Tim_Wood

Stock-Markets

Many proclaim that the recent decline below the June 2007 lows by the Industrials and the Transports served to trigger a Dow theory sell signal. Based on the evidence as I read the averages, this is not the case.

The extended advance up out of the 2002/2003 lows has proven to be one of the longest advances in stock market history. As a result, it has proven that the single most important aspect of Dow theory is price and that what we may perceive as value or a given market phasing is in fact secondary. In other words, price itself is the single most important aspect of Dow theory and the old time Dow theorists knew it.


In Robert Rhea's work titled The Story of the Averages , it is made very clear by the numerous examples that confirmation of a Primary up trend occurs when both averages better their previous Secondary High Point and that a Primary down trend is established when both averages violate their previous Secondary Low Point.

Moving on to the chart below and according to this basic principle of Dow theory, the Primary Trend turned up, or in Rhea's words it was “authoritatively established as bullish,” way back in June 2003 when the 2002 Secondary highs were bettered. Since that time the averages have made six consecutively higher advances. Each of these advances have established yet a higher Secondary High and Low Point with the last joint closing high that occurred on July 19 th having marked the 6 th Secondary High Point since the 2002/2003 lows. Many are looking at the joint decline below the June 2007 lows as having violated the previous Secondary Low Point and thereby confirming the Primary Trend as being down.

I do not believe this to be correct because the June lows were not, in my opinion, sufficient enough to be classified as having marked a Secondary Low Point. It is my belief that the decline from the July 19 th joint high marked the beginning of the decline into a new Secondary Low Point. Thus, the market is still fishing for the next Secondary Low Point and at this time the previous Secondary Low point also remains intact. Therefore, from my perspective of Dow theory, the Primary Trend remains bullish.

We also find in Robert Rhea's writings this specific quote about the transition between bull and bear markets. “Under Dow's theory the primary trend, once authoritatively established as bullish, is considered to be continuing in force until negated by a confirmed bearish indication such as would be the case when, after a reaction of full secondary proportions in a bull market, a rally fails to lift both averages to new high ground, and a later decline carries both averages below the preceding secondary low.”

If we apply what Rhea is saying here to the current market, the averages would first have to establish a Secondary Low Point, which again I believe it is now doing. Then, from that low the averages will have to fail to better the July 19 th highs and then turn down below the Secondary Lows that are now being established in order to confirm that the Primary Trend has turned from bullish to bearish.

Therefore, based on the fact that the averages have not yet violated their previous Secondary Low Points nor have the averages experienced a failed rally followed by a decline below their previous Secondary Low Points, I cannot find justification to say that the Primary Trend, in accordance to the Dow theory, has turned bearish.

Now, looking at the market from a cyclical and statistical perspective, which has absolutely nothing to do with Dow theory, all indications continue to suggest that the market is extremely over extended in what has now become the second longest advancing 4-year cycle in stock market history. The Dow theory simply has not confirmed a Primary Trend change at this point. Anyway, this extended move has obviously been fueled by the liquidity campaign to keep the market advancing.

However, even the Fed can only do so much. The intermediate-term internals have been fading as the markets “broke out” into their recent new highs. New lows are registering readings not seen in years and the intermediate-term breadth indicators that I follow have been weak for months. The issue now is that the market has become so stretched on such weak internals that it is becoming increasingly harder to keep the advance going. I believe that the Fed understands the house of cards very well and an example of this came with the massive liquidity infusion reported by CNBC on Thursday when the market once again began to soften. There are two noteworthy points to be made here. One, the Fed knows the danger of the market and stepped in with the liquidity to try to save it on Thursday, but it still fell some 387 points.

So, it is getting harder and harder to save. Two, if the market wasn't at great risk do you think the Fed would be taking the measures that they are? No, they are afraid to let any reasonable correction begin because they know the risk of an implosion. Maybe the market can be saved again and maybe it can't. But, it really doesn't matter because even if it is saved again, it will be on even worse internals and create even greater complacency. The market is stretched well beyond any historical norm and this cannot continue forever. Ultimately the Fed is fighting a losing battle. The internals stink and the decline into the now very extended 4-year cycle low is coming and there will ultimately be nothing the Fed can do to stop it. You have been warned!

I have begun doing free Friday market commentary that is available to everyone at www.cyclesman.com/Articles.htm so please begin joining me there. Should you be interested in analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator on stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more, then please visit www.cyclesman.com for more details. 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

© 2005-2019 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

6 Critical Money Making Rules