Tuesday, August 5, 2014

Dow Theory Update for August 5: Secondary reaction for stocks likely to be signaled at today’s close

I am writing these lines two hours before the close. The SPY, Industrials and Transports are likely to close below the last recorded minor lows (those of Friday, August 1st) and accordingly a secondary (bearish) reaction against the primary bullish trend will be signaled, because:

a) At least two indices declined more than 3% from the latest recorded highs (July 16, for the Industrials, July 23 for the Transports, and July 24 for the SPY). In fact, the three indices we monitor have declined by more than 3%.

b) The decline has averaged more than 8 trading days for all three indices. In fact, the SPY will have declined 8 trading days, the Transports will have declined 9 trading days and the Industrials will have declined 14 trading days, which gives us an average decline of 10.33 days.

c) More (much more) than 10 calendar days of declines on at least 2 indices has been fulfilled.

Tomorrow I will further elaborate. In the meantime suffices to say that a down close will usher stocks into a secondary reaction. This doesn't change (for the time being) the primary trend, which remains bullish, but changes the secondary trend from bullish to bearish.

The Dow Theorist.

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