Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17
Turning Point Nations On The Stage - 11th Oct 17
The Profoundly Personal Impact Of The National Debt On Our Retirements - 11th Oct 17
Gold and Silver Report – Several Interesting Charts - 10th Oct 17
London House Prices Are Falling – Time to Buckle Up - 10th Oct 17
The S&P Is A Bloated Corpse - 10th Oct 17
Are Gold and the US Dollar Rallying Together? - 10th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Stocks Bear Market - Dow Theory Proves Correct!

Stock-Markets / Dow Theory Jan 12, 2008 - 02:45 PM GMT

By: Tim_Wood

Stock-Markets Best Financial Markets Analysis ArticleIn spite of its criticisms, the Dow theory is once again proving correct. The one thing that the advance up out of the 2002 low has proven is that the single most important aspect of Dow theory is the concept of joint price confirmation above and below previous secondary high and low points. Basically, nothing else matters. In accordance with this basic concept, the primary trend first turned bullish on June 4, 2003. As the market advanced in the wake of mountains of liquidity the values did not make sense. Also, when looking at the phasing aspect of Dow theory it appeared that the rally out of the 2002 low was a giant secondary reaction and counter-trend advance.


Understand that cycles have absolutely nothing to do with Dow theory, but from a cyclical perspective we have also been operating in an extremely stretched 4-year cycle. It's now so stretched that we are operating within the second longest cycle in stock market history. The statistics have been and continue to be very much against the market. Yet, the market chugged higher and higher stretching the cycle and the statistics even further. In the process, this move has indeed proven that the value and phasing aspects of Dow theory are subordinate to the basic concept of primary trend confirmation. From a Dow theory perspective, nothing else has mattered and as reported here, the first and only bearish primary trend change since the 2002 low occurred on November 21, 2007.

At that time the market was moving into a low and the bounce that followed caused many to question the integrity of the primary trend change. But, from both a cyclical and a Dow theory perspective, I told subscribers that the expected bounce up out of the November low was a counter-trend move. The Cycle Turn Indicator signaled that top beautifully and on January 8, 2008 the Industrials closed below their November low, as did the Transports. This joint break and new closing low served to reconfirm the controversial primary trend change that occurred on November 21, 2007. So, in spite of the controversy, the January 8 th close proved once again that the most important aspect of Dow theory is the very basic concept of primary trend confirmation and that the November 21 st bearish trend change is definitely still intact. The current Dow theory chart can be seen below .


As we move into the window for the next turn point, the rally that follows will once again cause raise question in regard to the authenticity of this primary bear market. But, to date we have not seen any evidence to suggest that this bearish trend has ended. In fact, all of the statistics are just now coming into play. There will be rallies along the way and some will be fast and furious. But, until the now bearish primary trend change is reversed in accordance with Dow theory principle, any bounce will continue to be viewed as a secondary reaction.

Now I want to review the progress of the list of important indexes that have lead in association with this primary bearish trend change. First we have the Housing Index, which I first warned about topping here back in October 2005. In looking at the current chart below you can see that this index has recently made new lows along with the Industrials just this past week. In fact, this index is now back at its 2003 levels.


Following the Housing Index we next saw the Banking Index peak in February 2007. As you can see in the chart below, here too, this index also moved to new lows this past week in conjunction with the additional weakness seen by the Industrials. I can also report to you that the Banking Index is now back to its 2003 levels as well.


The top in the Broker Dealer Index then followed in June 2007 and this chart can be found below. Again, the weakness seen by the Industrials this past week was also further confirmed by the Broker Dealers and this index is now sitting at 2005 levels.


Next I have included a chart of the Retail Holders Index, which topped out in July 2007. Here too, the weakness seen by the Industrials this past week was also confirmed by the Retailers, which now sits at 2003/2004 levels as well.


But wait, what about tech? Well, next you will find a chart of the Industrials verses the Semiconductors. No one seems to be talking about it, but even this sector is now back to its 2003 and 2004 levels.


So, my point here is that the big blue chips were the last to peak this time around as this cycle and the historical norms continued to be stretched. As a result, of this stretching the public has been lulled to sleep. They have bought the idea that the FED is in control, that Dow theory doesn't matter, that the cycles are meaningless, that this time is different and that the bull market will continue forever and ever amen. Well, I will admit one thing. This time has been different in regard to the degree this cyclical advance has run. But, the statistical norms that have been stretched and disregarded are once again becoming reality.

Let me add that the argument that the 2006 low marked the 4-year cycle low, is now backfiring on those that made this argument. Reason being, if the 2006 low was the last 4-year cycle low, then with most of these indexes now below those levels suggests that we will continue to see weakness into 2010. I say 2010 because based upon that alleged cyclical phasing the next 4-year cycle low would not be due in or around 2010. So, those who want to argue that the 2006 low marked the last 4-year cycle low now find themselves with a much more bearish scenario than they bargained for by originally making such claims.

Just as I have said all along, we have not seen a 4-year cycle low since the 2002 low. The statistics simply did not support any other argument. Fact is, we have been operating within a very very stretch 4-year cycle that has been held together with liquidity, bailing wire, duct tape, hope, hype and B.S. from the mainstream media. The Dow theory has proven correct and what is now the second longest 4-year cycle in stock market history is now only beginning to contract. You have been warned yet again!

I have begun doing free Friday market commentary that is available at www.cyclesman.com/Articles.htm so please begin joining me there. In the December issue of Cycles News & Views I reviewed all Primary Bear markets going back to 1896 in an effort to answer the question of how far this decline could potentially go. I also have a very detailed slide show presentation on cycle quantifications, which gives a statistical analysis surrounding the overdone 4-year cycle that I have been warning about as well. A subscription includes access to the monthly issues of Cycles News & Views, which included Dow theory, a very detailed statistical based analysis covering not only the stock market, but the dollar, bonds, gold, silver, oil and gasoline along with short-term 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

© 2005-2017 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

Catching a Falling Financial Knife