Friday, January 24, 2020

Dow Theory Update for January 24: Could the current bull swing for US stocks stall soon?

Primary and secondary trends unchanged for all the markets I follow


 By way of exception some non-Dow Theory musings concerning the trend for US stocks.

US stock indices have making been higher highs and technically, and particularly according to the Dow Theory, the primary trend is strongly bullish with no secondary reaction in sight.

Long time readers of this blog know that I also trade US stocks short term (with some strategies incorporating a Dow Theory filter). What I am seeing in the last 3-4 trading days is weakness which is not yet apparent on the charts of indeces. I see weakness for the following reasons:

·        Suddenly almost all my shorts are performing well (when the tide is strongly up, even though, I can be profitable shorting, the number of losing trades is much higher). Now shorting seems piece of cake, which is not normal.

·        Some of my long trades experienced sudden weakness and the stop-losses have been hit. I use ample stop-losses (i.e. 16% or a generous ATR multiple). Normally, my stop-losses never get hit, as I am able to exit even a losing trade well before the stop loss is hit. Thus, being suddenly stopped out of longs means some stocks suddenly are really weak. If memory doesn’t fail me I hadn’t been stopped out of a long position for months.

·      The trading candidates after requiring a minimum of volatility and volume has declined. Hence, I have a small universe of trading candidates. Historically, the “drying up” has been harbinger of a change of trend, at least of secondary proportions (secondary reaction).

·        I see that US interest rates (TLT and IEF) are going once again down. As per the Dow Theory the primary trend is bullish (hence, declining interest rates) and the secondary trend bearish (secondary reaction). While not officially ended yet, the secondary reaction seems to be on its death throes. A new up leg in US interest rates coupled with the weakness I see in the internals of the stock market (my own trading) has suggested in the past a decline in US stocks.

Of course, this is not Dow Theory but I’ll be keeping an attentive eye to the market. 

Having said this, I brief reminder of the current situation of the stock markets according to the Dow Theory

Under Schannep’s Dow Theory

The primary and secondary trend turned bullish on October 25th, 2019, as was explained here and here. The three US stock indices continue making higher highs, now with the Transports joining the parade. As of this writing we are far from a secondary reaction. As Schannep is fond of saying, now stocks are “in the clear”.

Under the Rhea/Classical Dow Theory

If we appraise the trend under the “Rhea/classical” Dow Theory, the primary trend is bullish since April 1st, 2019, as was explained here

The secondary trend is now bullish, as the Transport bettered on January 14, 2019 their secondary reaction closing highs (of 04/29/2019) hence confirming the Industrials.  The primary bull market has been reconfirmed.

All in all, now both the primary and secondary trend is bullish.


The primary trend and secondary trend was signaled as bearish on 11/07/2019 as was profusely explained here

The secondary trend is bullish (secondary reaction against the primary bear market) as was profusely explained here.


The primary trend is bullish since 12/18/2018 as explained here. No changes. This specific signal is now more than one year old. Hence, we are dealing with a trade whose duration seems quite in line with what is to be expected under the Dow Theory (trades lasting more than one year on average, please mind the word “on average”).

On 09/04/2019 SIL and GDX made its last recorded primary bull market closing highs. From that date both ETFs declined and the secondary trend turned bearish (secondary reaction against the primary bull market) as explained in-depth here. The secondary reaction closing lows were jointly made on 10/15/2019

On 10/25/2019 the setup for a primary bear market has been completed as explained here

From that date GDX flirted with violating its secondary reaction closing lows which it did not. SIL was much stronger and has hitherto remained at a safe distance of those lows.

On 12/24/2019 SIL bettered its primary bull market closing highs unconfirmed by GDX. (blue arrow on the right side of the upper chart). Hence, we cannot declare the secondary reaction as extinguished. Thus, we remain in a primary bull market with an ongoing secondary reaction.


As it was explained here, TLT and IEF (two ETFs that relate to US interest rates) are in a bull market (since 12/18/2018 or 11/19/2018 depending on the way one appraises the secondary reaction). I also explained that they are currently under a secondary reaction.

One Dow Theorist

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