Thursday, May 9, 2019

Dow Theory Update for May 9: Secondary reaction for US stocks signaled today

 Trends unchanged for gold, silver and their ETF miners

I don’t have much time to blog. So I will cut to the chase.


The primary trend as per Schannep’s Dow Theory is bullish since March 1st, 2019 when both the Industrials and the S&P 500 closed at +19% from the 12/24/2018 bear market closing lows. The secondary trend is bullish too, as explained here.

However, “capitulation” suggested the opening of a partial commitment to stocks on the very day of the market bottom (12/24/2018). More about that partial commitment here.

And more about “capitulation” in general in the following links:

Yesterday I wrote that higher highs made by the S&P 500 not confirmed was not good news. Well, today, as per Schannep’s Dow Theory, the secondary trend turned bearish. In other words, a secondary (bearish) reaction against the primary bear market has been signaled.

The time requirement has been met as the Industrials has declined for 12 trading days, the Transports for 11 trading days and the S&P 500 for 7 trading days. The average decline for the three indices amounts to 10 days. As per Schannep’s rules we need at least 10 calendar days in at least two indices and the average time for the three indices must reach an average of at least 8 days.

As to the extent requirement today it has been fulfilled. The Industrials and Transports have declined more than 3%, whereas the S&P 500 has just declined -2.54%. Under Schannep’s Dow Theory the extent requirement must be confirmed by at least two indices, which happened today. Here you have the spreadsheet containing the calculations:

All in all, we have a brand new secondary reaction (as per Schannep's Dow Theory). 

Here you have the updated charts. The orange rectangle on the right side displays the ongoing secondary reaction:

Orange rectangles display the ongoing secondary reaction which has been signaled today
The primary trend as per the “Rhea/Classical” Dow Theory is bullish since April 1st, 2019, as was explained here. As to the status of the secondary trend it is debatable. In contrast with Schannep’s Dow Theory with its clear-cut rules, the “Rhea/classical” Dow Theory is not so clear. Schannep tends to demand 3 weeks (15 trading days of declines). However, even Rhea conceded that in some instances that time could be shortened. Personally, given the huge rally (in both time and extent) that started on 12/24/2018, I feel that we should require a time requirement of three weeks. My personal view in this specific juncture is to wait until at 15 trading days have elapsed for both the Industrials and the Transports. As to the extent requirement it has been been met if we follow Schannep’s requirement of a confirmed pullback of at least 3%, as both the Industrials and Transports have declined more than 3%. However, if we adhere to a strict application of the “classical” Dow Theory, we have not seen a 1/3 retracement of the primary bull swing which got started on 12/24/2018 yet. All in all, let’s wait to declare the existence of a secondary reaction.

However, and this is the subject for another post (and before I have to write about capitulation), I am toying with appraising secondary reactions with variable timeframes (i.e. 10, 15 trading days), and devoting a proportional amount of capital to each definition of secondary reaction. By doing this I generate more trades and commit less capital to each trade (let’s say 50% of trading capital allotted to the trades arising out from each definition of secondary reaction). But this is the issue for another “saga” of posts.


The primary trend is bullish since 12/24/2018 as explained here. No changes. We finally got a secondary reaction on 4/16/2019 when GLD violated its 03/07/2019 closing lows (and confirmed SLV which had done so some days ago). More about the entrails of such a secondary reaction here and here.


The primary trend is bullish since 12/18/2018 as explained here. No changes. 

The secondary trend is bearish (secondary reaction) since 4/18/2019 when GDX violated its previous 03/06/2019 closing lows (and confirmed SLV which had done so several days before), as was explained here. and here

The Dow Theorist

No comments:

Post a Comment