Friday, January 18, 2019

Dow Theory Update for January 18: Secondary (bullish) reaction against primary bear market as per the “Classical” Dow Theory

Precious metals remain in primary and secondary bullish trends

I am writing on January 18 just before the close.


The primary trend as per Schannep’s Dow Theory is bearish. The secondary trend (secondary reaction against the primary bear market) is bullish, as explained here.
However, at the very least since January 16th, 2019 we can discern a secondary (bullish) reaction against the primary bear market as per the “Rhea/Classical” Dow Theory. The primary trend is bearish as explained here
Well, on January 15th, both the Industrials and the Transports had rallied for 15 trading days, which is the equivalent of full three weeks of market action. Thus, even under the most conservative interpretation of the time requirement (three weeks instead of two), the time requirement has been met. As of today’s close, we have had 16 trading days of bullish action

As to the extent requirement, both indices have rallied much more than 3% off the closing lows of 12/24/2018.

Furthermore, even under a very strict and “classical” interpretation of Dow  Theory (which requires at least –albeit not carved in stone- a confirmed retracement of 1/3 of the previous bear or bull swing) both indices have retraced more than 1/3 of the primary bear market swing which started at 10/03/2018 (Industrials) and 9/14/2018 (Transports) and whose bottom was made on 12/24/2018. More specifically, the Industrials have retraced ca. 50% of the previous bear swing whereas the Transports have retraced ca. 38%. Please mind I am ballparking, as it is obvious glancing at the charts that both retracements exceed 1/3 and I don’t have to write to write a PhD dissertation.

Please find below a chart made with TradeStation ® which has the tool of superimposing price retracement lines.

Blue rectangles on the right side of the charts display ongoing secondary reaction. Horizontal lines show retracements

Bottom line: Both the extent requirement and the time requirement has been amply met any way you cut it.

Hence US stocks under the classical Dow Theory are under a secondary reaction against the primary bear market, thereby being aligned with Schannep’s Dow Theory. As yhou can see both Dow Theory "flavors" tend to be in gear, albeit Schannep's Dow Theory tends  to be quicklier than the "classical".

Now we have to wait until a pullback lasting at least two trading days and exceeding more than 3% (in at least one index) materializes. 


The primary and secondary trend is bullish as explained here. No changes.


The primary and secondary trend is bullish as explained here. No changes.

By the way, the fact that both the metals and their miners got primary bull market signals on nearby dates, seems to imply that we get even more confirmation which tends to be good.


The Dow Theorist

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