2015 was a year of intermediate term whipsaws. 2016 saw longer term indicators whipsawing. The longest term indicator I follow is Dow Theory. It looks for trends that last from one to three years (or longer). As a result, Dow Theory gives a lot of leeway to counter trend moves. It’s common to have a 10% or 15% correction during a long term bull market that doesn’t change Dow Theory’s long term trend. You can see some examples during the long term uptrend from mid 2009 to early 2016 in the chart below. Zooming in to the last few years, you can see what appeared to be a long term trend change according to Dow Theory. In August of 2015, both the industrials (DJIA) and the transports (DJTA) had large enough corrections to mark Dow Theory secondary lows. In December of that year, DJTA broke below its secondary low point and created a bearish non-confirmation in the indexes. In February 2016, DJTA broke its secondary low point. This created a
Today at the close Dow Theory signaled a bull market is underway. Bull markets are expected to last from one to three years. The current signal comes after what I consider a bad bear market call in February. On a side note, almost all of my core market health indicators surged strongly higher this week. They are also indicating that the market is preparing for a year end rally. The most notable change is that my measures of market quality have now moved above zero. If that holds, the core portfolios will be adding more exposure and reducing hedges.
The Dow Jones Transportation Average (DJTA) is once again bumping up against its last secondary high. It has failed to surpass it on the last two occasions. If it can clear the 8110 level on a daily closing basis it will signal that we’re in a long term bull market. If that occurs, I’ll consider the bear market call from Dow Theory last February a bad signal that resulted in a whip saw. Although the last signal might be a bad one, Dow Theory has a long track record keeping us on the right side of the market for long term trends.
Yesterday, the Dow Jones Transportation Average (DJTA) closed just 32 points away from its last secondary high. If it had closed above that level it would have signaled, from Dow Theory, that a long term bull market was underway. Currently, Dow Theory sees us in a long term down trend, but with a bullish non-confirmation of the down trend. This is due to the Dow Jones Industrial Average (DJIA) being above its last secondary high, but DJTA failing to surpass its last high. DJIA is about 6% above its last secondary low. A close below that level would re-confirm that we’re in a long term down trend (that can be expected to last from one year to three). When we look at a one year chart of both indexes (above) the thought that we’re in a long term bear market seems silly. But looking at a two year chart (below) one could argue that DJIA is completing a complex topping pattern, while DJTA is still in a down trend. So,
In mid July, the major indexes started making new highs. The Dow Jones Industrial Average (DJIA) and the S&P 500 Index (SPX) broke higher first, followed by the NASDAQ 100 (NDX) then the NASDAQ Composite. The pattern on a weekly chart of SPX shows a long consolidation followed by a breakout, retest, and subsequent rally. This suggests that the market should continue to move higher in the intermediate term. Although most of the major indexes have reached new highs there are still a few holdouts. The most significant holdout is the Dow Jones Transportation Average (DJTA). It is still 17% below the December 2014 high. From a Dow Theory perspective, DJTA is still about 3.5% away from signaling a bull market (needs a move above its last secondary high). The industrials however, are above their last secondary high so a Dow Theory non-confirmation is currently in place. With the SPX showing a strong bullish chart pattern I suspect DJTA should signal a bull market in the coming weeks/months. Nevertheless, keep
The market is exhibiting behavior that we often see during times of indecision. Price is swinging in a large range and at the same time intermediate and long term indicators are giving mixed messages. Take a look at how compressed the the Y axis is on a point and figure chart for the S&P 500 Index (SPX). This clearly shows the sideways range of the past two years along with with multiple changes in the short to intermediate term trend (over the past year). The current trend is up and will stay that way as long as SPX stays above 2020… which coincidentally is about where the 200 day moving average is. The next set of mixed messages comes from a weekly chart of SPX. Weekly RSI is trying to turn down near normal bear market peak levels, while at the same time MACD is moving above levels associated with bear markets. Monthly momentum and MACD are mostly exhibiting bear market behavior. MACD is a little stronger than we normally
Yesterday the Dow Jones Industrial Average (DJIA) closed above its last secondary high point, however the Dow Jones Transportation Average (DJTA) is still about 4% away from its last secondary high. This creates a non-confirmation where one index is making new highs while the other is lagging. When a non-confirmation occurs it puts the current trend in doubt… kinda. As I’ve said before, most non-confirmations just don’t matter. They’re normal conditions during any trend so we have to wait for both averages to agree before drawing any conclusions. Until then the long term trend is still considered bearish. But, it’s time to start watching the transports closely. If they can surpass their last high it will indicate that a new bull market has begun (or that the bear call in February was a whip saw or false signal). Along with the non-confirmation that is inherently bullish my core market health indicators are improving rapidly. The measures of market trend and strength are improving quickly enough that one or both categories
The Dow Jones Industrial Average (DJIA) closed about 10 points below its last secondary high point today. The transports (DJTA) are still about 4% away from their last secondary high. If both indexes can close above those levels in the coming weeks the bear will be dead. If the bear market is going to continue I’d guess we’ll see a non-confirmation of the bear that looks something like DJIA closing above 17,918, but not reaching new highs. While at the same time DJTA won’t be able to make it above 8302. Keep an eye on DJIA and DJTA over the next few weeks because they’ll give clues to the long term trend. Another chart I’ve been watching is the S&P 500 Index (SPX) daily. It’s rallied back to its downtrend line. If it can close above that level for a few days then I suspect that we’re going on to new all time highs. Looking at a weekly chart of SPX, one could argue that we’re merely painting a bull
It’s been almost eleven months since the Dow Jones Industrial Average (DJIA) has made a new high. It’s been over fifteen months since the Dow Jones Transportation Average (DJTA) has made a new high. But, DJIA is only about 5% away from its highs. This makes it difficult for many people to determine if we’re in a bull or a bear market. According to Dow Theory, we’re in a bear, but getting close to levels that would turn the bear to a bull. When that occurs it’s time to watch the dip. All we have to do is watch to see if the downtrend resumes in force or if we get a small consolidation that rallies and breaks above the last secondary highs in DJIA and DJTA. A break higher will turn the bear to a bull. While we wait for a resolution, the core portfolios are moderately hedged or have a small exposure to the market. The volatility hedged portfolio, that is much more aggressive than the core portfolios,
As most of you know, I believe the market is currently in a long term down trend. However, I’m starting to see things that put the bear market in doubt… which should be a really good sign that we’re still in a down trend — because bear market rallies create enough doubt to suck people in. Back to the point, take a look at the chart below. It is a point and figure chart of the S&P 500 Index (SPX). This chart shows an intermediate or short term up trend within the confines of a longer term downtrend. But a closer look at the short scale indicates a long term sideways range. It will take a break of the range to add clarity to the pattern. A daily chart of SPX has a fairly clear downtrend channel. This indicates a new bear market is underway. We have to consider the current rally as a bear market rally until the upper bound of the trend channel is broken. If that channel