Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

The Dow Theory Potential Sell Signal Update

Stock-Markets / Dow Theory Dec 02, 2007 - 12:05 AM GMT

By: Tim_Wood

Stock-Markets In the previous November posting here I explained that in accordance to Dow's theory we had an important non-confirmation at play, which served as a warning that something was wrong. I also explained that we were then in what is known as a Sell Spot in anticipation of a Primary Trend change. On November 21, 2007 this Primary Trend change occurred. As a result, the “Stock Market Barometer,” as it was described by William Peter Hamilton back in the 1920's, is telling us that conditions are now stormy. This Primary Bear market will remain in force until negated by another confirmed bullish indication in accordance with Dow theory.

In the previous November posting I showed you the following quote from Robert Rhea: “Under Dow's theory the primary trend, once authoritatively established as bullish, is considered to be continuing in force until negated by a confirmed bearish indication such as would be the case when, after a reaction of full secondary proportions in a bull market, a rally fails to lift both averages to new high ground, and a later decline carries both averages below the preceding secondary low.”

Now that the Primary Trend change has occurred, I want to walk you through this quote and in doing so please refer to the chart below.

The last joint high confirming the Primary uptrend occurred on July 19 th . The decline into the August lows were a “ reaction of full secondary proportions in a bull market” and I told all of my subscribers that this was the case at the time the decline began. Anyway, from the August Secondary Low Points, the rally that followed failed “ to lift both averages to new high ground.” Thus, a non-confirmation was born.

But, given that the Primary Trend had been authoritatively established and since the averages were still above the previous Secondary Low Points, this non-confirmation only served as a warning. Once the Transports broke down below their August low, the warning became even louder. But still, the existing Primary Bull market remained intact. It was then when the “ later decline carried both averages below the preceding secondary low” that the Primary Trend change occurred.

I said in an interview on my website last week to look for this Dow theory signal to be questioned and sure enough that is already occurring. In one such example I received an e-mail stating that there is an error with Dow theorists saying that a primary sell signal was triggered when the Industrials moved below the August 16 th closing low because the intraday low was not violated. I have also seen additional e-mails stating that because the August intra-day low on the Industrials has not been violated, that we also have a Dow theory downside non-confirmation in place. In yet another e-mail it was suggested that because the August 16 th low was not violated by more that 1% that no signal was given. While another e-mail suggested that new lows had to be made on the exact same day.

In fairness, I can see why such misunderstandings can occur. But, none of these notions are correct from a pure Dow theory perspective. Now, you don't have to believe myself or Richard Russell in regard to this matter. Rather, we can turn to the original writings, which do reveal the facts. Charles H. Dow never actually wrote a book, but in his writings in the Wall Street Journal he clearly spoke in terms of closing price. If I turn to the works of Robert Rhea, who was the leading Dow theorist during the 1920's and 30's, we find that he in fact states “In studies of the application of Dow's theory to the price fluctuations of the Dow Jones Industrial and Railroad averages, only the closing prices are considered.” So, in accordance with pure Dow theory it is the close that counts and as a result the requirements have been made to fulfill a Dow theory Primary Trend change and since it's the close that counts, there would not be a downside non-confirmation now forming.

In regard to the Dow theory requiring a 1% close below a previous level to trigger a Primary Trend change, that too is not a part of traditional Dow theory. Rhea explains that William Peter Hamilton would “quote various prices, correct to two decimals, then refer to the fact that one average had penetrated its earlier price by perhaps two or three cents.” Rhea also wrote on this topic stating “ Some students of the averages believe that under Dow's theory the piercing of a previous high or low point is inconclusive until both averages penetrate those prices by 1.01 points.” Rhea goes on to state that both Dow and Hamilton considered “any penetration confirmed by both constitutes a valid penetration.” Thus, it is clear from these writings that there is no threshold for price penetration of a given price level in order to be valid.

In regard to price penetration on the same day Rhea wrote “It is by no means necessary, as experience shows, that the low or high point of primary movement should be made in both averages on the same day.”

The next question in regard to Dow theory is how long and how far down will this Bearish Primary Trend take the market. In accordance with Dow theory, the extent nor the duration of the Primary Trend once established is known. All I can tell you from a Dow theory perspective about this is that we are now operating within the context of a Primary Bear market, which will remain intact until it is reversed. 

I have begun doing free Friday market commentary that is available at so please begin joining me there. In the December issue of Cycles News & Views I will be reviewing a statistical analysis of all Primary Bear markets going back to 1896 in an effort to answer the question of how far this decline could potentially go. I also have a very detailed slide show presentation on cycle quantifications, which gives a statistical analysis surrounding the overdone 4-year cycle and what is expected to follow.

A subscription includes access to the monthly issues of Cycles News & Views, which included Dow theory, a very detailed statistical based analysis covering not only the stock market, but the dollar, bonds, gold, silver, oil and gasoline along with short-term updates 3 times a week.

By Tim Wood

© 2007 Cycles News & Views; All Rights Reserved
Tim Wood specialises in Dow Theory and Cycles Analysis - Should you be interested in analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator as well as coverage on the Dow theory, other price quantification methods and all the statistical data surrounding the 4-year cycle, then please visit for more details. A subscription includes access to the monthly issues of Cycles News & Views covering the stock market, the dollar, bonds and gold. I also cover other areas of interest at important turn points such as gasoline, oil, silver, the XAU and recently I have even covered corn. I also provide updates 3 times a week plus additional weekend updates on the Cycle Turn Indicator on most all areas of concern. I also give specific expectations for turn points of the short, intermediate and longer-term cycles based on historical quantification.

Tim Wood Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules