Dissecting a secondary reaction under Dow Theory

Result: No secondary reaction yet

As I promised yesterday, here you have an updated chart of the Industrials, Transports and the SPY and the implication to be derived from a Dow Theory standpoint.

As you can see, only the Transports have fulfilled the requirements for a secondary reaction to exist. The Industrials haven’t even corrected for 10 trading days (since its last highs were made on 09/20/2012. And the SPY although it has corrected for more than 10 days, it hasn’t even reached the critical 3% threshold for a downward movement to qualify as a secondary reaction.

However, one of the main tenets of the Dow Theory is that any movement (i.e. a secondary reaction) to be valid must be confirmed by two indices. This is not the case as of this writing and hence we have to conclude that the very light downward movement doesn’t even qualify as a secondary reaction.

This has two implications for investors:

a)      For latecomers the “sweet” entry point is not ready yet. If you don’t understand this sentence you should read this post  “What should I do if I missed the Dow Theory bull signals for the SPY and GLD? Dow Theory’s second chance: The first secondary reaction” which you can find here 

b)      For those already “in” we still cannot raise our trailing stops which continue fixed at the June 4 bear market lows. More on how to place stops under Dow Theory here 

Here the chart:

Under Dow Theory only the Transports are experiencing  secondary reaction unconfirmed by other indices

Here the details as to the relevant figures to appraise the existence of a secondary reaction:

 

SPY
Last primary leg primary movement up
LAST HIGH	147.24	09/14/2012
PRIOR LOW	128.1	06/04/2012
Amount primary	0.14941452
movement
Correction until Sep 28, 2012.
LAST HIGH	147.24	09/14/2012
Last low recorded	143.97	09/28/2012
pullback down	-0.02220864	doesn't qualify as a correction
total up leg	19.14	points
total correct	3.27	points
% secondary
corrected	0.17084639	far for retracing at least 1/3 of prior leg up
Industrials	Warning: Industrials haven't corrected for 10 days
Last primary leg primary movement up
LAST HIGH	13596.93	09/20/2012
PRIOR LOW	12101.46	06/04/2012
Amount primary	0.12357765
movement
Correction until Sep 28, 2012.
LAST HIGH	13596.93	09/14/2012
Last low recorded	13437.1	09/28/2012
pullback down	-0.01175486	doesn't qualify as a correction
total upleg	1495.47	points
total correct	159.83	points
% secondary
corrected	0.1068761	far for retracing at least 1/3 of prior leg up
Transports
Last primary leg primary movement up
LAST HIGH	5215.97	09/14/2012
PRIOR LOW	4847.73	06/04/2012
Amount primary	0.07596133
movement
Correction until Sep 28, 2012.
LAST HIGH	5215.97	09/14/2012
Last low recorded	4892.62	09/28/2012
pullback down	-0.0619923	Qualifies as a correction
total upleg	368.24	points
total correct	323.35	points
% secondary
corrected	0.87809581	It has retraced more than 1/3 qualifies as a correction

Sincerely,

The Dow Theorist