Posts Tagged ‘dow theory’

Dow’s Theory of Markets

Here’s the second chapter from Pharmboy’s “Handbook of Technical Analysis.”  If you missed the introduction and first chapter, click on “Understanding Market Cycles: The Art of Market Timing” to read from the beginning. – Ilene

Dow’s Theory of Markets

Courtesy of Pharmboy of Phil’s Stock World

Chalkboard with Einstein's Theory of Relativity

Technical analysis dates back hundreds of years. According to historical records, a great Japanese rice trader named Homma Munehisa (1724-1803) developed a form of TA known as candlestick charting.[1] A candlestick chart is a style of bar-chart used primarily to describe price movements of securities, derivatives, and currencies over time.  It combines aspects of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. It is most often used in TA of equity and currency price patterns.

Technical analysis is an art. With focus and diligence, TA can often be learned within a short period.  A chartist using TA reads and interprets chart patterns and then attempts to predict the most likely short-term outcome based on his methods. Figure 1 shows a 6 month Diamonds (DIA) candlestick chart and many patterns and studies that traders often use to enhance their trading. Moving averages convergence divergence (MACD) and relative strength index (RSI) are two studies very commonly used by technical analysts.  MACD is a trend-following momentum indicator that shows the relationship between two moving averages of prices, while RSI is a technical momentum indicator that compares the magnitude of recent gains to recent losses in trying to decide overbought and oversold conditions of an asset.  Because candlestick charting is the basis of this handbook, I use these types of charts almost exclusively in my examples.

In the U.S., TA first gained a following from Charles Dow’s Dow Theory in the late 19th century. The six basic tenets of Dow Theory, as summarized by Hamilton, Rhea, and Schaefer, are as follows:

Tenant 1.  The market has three movements (Figure 2):

  1. The primary trend, or major trend, may last from less than a year to several years.  It is bullish or bearish.
  2. A secondary trend moves in the opposite direction of the primary trend, or as a correction to the primary trend.  For example, an upward primary trend will


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Banks, Transports Foreshadow Equities Decline

Banks, Transports Foreshadow Equities Decline

Former Westpac bankCourtesy of Ben, the Financial Ninja

FN: I’ve pointed out some of the divergences over the last few weeks that are mentioned in this Bloomberg article.

Banks Falling 23% Since May Foreshadow S&P 500 Slump (Update1): "Declines of more than 20 percent in regional banks and homebuilders and the failure of transportation companies to erase their annual loss may be signs the rally in the Standard & Poor’s 500 Index is about to fizzle.

Smaller lenders in the gauge lost 23 percent since climbing to a four-month peak on May 8, while builders tumbled 26 percent from May 4, when they reached the highest level since October. Concern that mortgage rates, credit losses and foreclosures are increasing spurred retreats in the companies forecast to be among the biggest beneficiaries of $12.8 trillion in government stimulus spending.

Slumps in bank stocks foreshadowed previous declines in the S&P 500 as investors focused on real-estate losses that curbed lending. Regional banks’ 51 percent plunge over 28 days starting Dec. 8 came a month before the S&P 500 began a 28 percent slump to a 12-year low of 676.53. The lenders’ all-time high in February 2007 occurred seven months before the S&P 500’s record.

FN: I pointed out three times that banks had stalled, rolled over and were threatening to break down in: Financials: Charts Say "Decision Time", Update1, Update2.

“If housing and credit led us into all this, they will have to stabilize,” said Mark Demos, a Minneapolis-based money manager at Fifth Third Asset Management, which oversees $18.7 billion. “There’s a growing concern that they’re not out of the woods. Less bad does not equal good.”

Speculation government spending will end the first global recession since World War II helped push up the S&P 500 by 15 percent since March 31, the biggest quarterly increase since 1998. Financial shares gained the most among the S&P 500’s 10 industry groups, rising 35 percent. Futures on the index rose 0.6 percent to 920.60 at 7:12 a.m. in New York today.

Stocks began to decline three weeks ago as economic reports spurred speculation the U.S. economy isn’t recovering fast enough to justify the S&P 500’s 36 percent advance since March 9. The Federal Reserve said in its


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Dow Theory Nonconfirmation in Transports and Industrials

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Dow Theory Nonconfirmation in Transports and Industrials

Courtesy of Corey Rosenbloom of Afraid to Trade

There’s interesting chatter in the “Dow Theory” community as to whether we’re experiencing a non-confirmation in the Industrials and Transports currently – namely, the Industrials are at a new high for 2009 and are above the 200 day SMA while the Transports are not.  Let’s take a look at both.

Dow Jones Industrial Index:

One may also ask the question “Is there a ‘Three Push’ Reversal pattern forming in the Dow Jones?”  It would appear so, with three consolidating ‘pushes’ or impulses up that have formed on three lower highs in the 3/10 Momentum Oscillator.  That alone is a serious non-confirmation of higher prices.

We also see a volume divergence setting in underneath price, with volume in the Dow Jones Index (1.1 Billion today) reaching a level that is clearly below the recent average – more importantly is the “trailing off.”

One can also see the multitude of ‘dojis’ (often known for their ‘reversal’ signal) that have formed over the last two weeks – that is showing signs of serious indecision.

In terms of Dow Theory, the Industrials have made a new high and have risen above their 200 day Simple Moving Average which is classically bullish… but the Transports Index has not.

Dow Jones Transportation Index:

Again, while the Dow recently formed new highs for 2009, the Transports could neither break above their May highs nor its 200 day simple moving average.

A negative momentum divergence has also formed as well as a negative volume divergence.

I could have easily titled this post “Major Sell Signal in the Dow Jones Index” but I dare not be so bold, given the ability of the market to rise against a negative fundamental and technical backdrop.

From a chart (technical) standpoint, the chart is literally screaming “sell signal,” but still we operate in a world of probabilities and stranger things have happened, so do continue to guard your risk and do your own analysis for additional insights.

Corey Rosenbloom, CMT
Afraid to Trade.com

 

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ARE TRANSPORTS FLASHING A FALSE BUY SIGNAL?

ARE TRANSPORTS FLASHING A FALSE BUY SIGNAL?

Courtesy of The Pragmatic Capitalist

transports, trucks, railsInteresting read in yesterdays Journal on the Transports.  Readers know that I am fond of following the REAL economy – consumer trends and blue collar jobs such as trucking score high on my scale of economic importance.  Lately, we’ve been seeing an odd trend.  The transport stocks and the general market tend to be trending higher despite little to no signs of strength in actual consumer spending or real economy industries like trucking and rails.   The Journal writes:

A new high for transports would “confirm,” in technical lingo, a similar peak for the Dow industrials this week. According to the school of market analysis called Dow Theory, which arises from the ruminations of Wall Street Journal co-founder Charles Dow, having the Dow industrials and the Dow transports in such harmony is strong evidence a bull market is cooking.

But this indicator can send false signals. It was bullish in the spring of 2008, just before the transports and industrials tumbled together.

And reading these charts is a subjective art. Ryan Detrick, technical strategist at Schaeffer’s Investment Research, notes that one could take the view that transports have lagged behind the industrials all year, often a warning sign for stocks. And transports have a good reason for lagging behind: Transportation hasn’t caught up to other recent signs of economic recovery.

One measure of this is the number of railroad cars being loaded with coal, auto parts and other stuff at the nation’s major railroads. Car loadings this year are down nearly 20% from the same period in 2008, putting this on pace to be the worst year since 1982, according to the Association of American Railroads.

The AAR on Thursday reported that loadings jumped last week to their highest levels in nine weeks. But loadings have zigzagged up and down within a downward trend since March, even as transport stocks have risen. Ordinarily, transport stocks and car loadings are more closely correlated, said Ed Yardeni, chief investment strategist at Yardeni Research.

“The plunge in rail-car loadings,” Mr. Yardeni recently told clients, “is one of the most glaring nonconfirmation signals for those of us rooting for an economic recovery and a sustainable bull market.”

The King of Dow Theory sounds equally pessimistic, despite near confirmation in the


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Phil's Favorites

A massive power outage like Argentina's could happen in the US - 4 essential reads

 

A massive power outage like Argentina's could happen in the US – 4 essential reads

A man reads the newspaper by flashlight during the Northeast Blackout in August 2003. AP Photo/Joe Kohen

Courtesy of Jeff Inglis, The Conversation

Argentina and Uruguay are recovering from nationwide power blackouts that cut electricity to tens of millions of people, including some in ...



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Zero Hedge

Fed Hints At July Cut As Expected, Drops "Patient" Language, Says "Outlook Uncertainty" Has Increased

Courtesy of ZeroHedge

With stocks 1% away from record highs and bond yields (and the curve) tumbling as market expectations for multiple rate-cuts surge, Fed Chair Powell is going to have to thread a very fine needle today - shifting Fed indications towards the market's view without panicking markets over "what he knows that we don't." And of course, Trump will be watching closely...

Offering Powell some room for maneuver is the fact that June rate-cut expectations are around 23%, but July expectations are over 80%, so the dots better adjust soon.

...



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Kimble Charting Solutions

Interest Rates Bottoming On Fed Decision Day?

Courtesy of Chris Kimble.

This afternoon the Fed will announce if they are going to lower interest rates. Does the bond market already have a rate decrease priced into the market? Possible!

This chart looks at the yield on the 10-year note over the past 20-years. Without a doubt, the long-term trend of lower highs remains in play.

Rates have declined over 35% since hitting 20-year falling resistance, that came into play in October of 2018.

The decline has rates testing rising channel support and the 2017 lows this week at (1). While dual support is being tested, weekly momentum is hitting the lowest ...



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Insider Scoop

Benzinga's Top Upgrades, Downgrades For June 19, 2019

Courtesy of Benzinga.

Top Upgrades
  • SunTrust Robinson Humphrey upgraded Tripadvisor Inc (NASDAQ: TRIP) from Hold to Buy. TripAdvisor shares rose 3.2% to $47.80 in pre-market trading.
  • Wedbush upgraded Six Flags Entertainment Corp (NYSE: SIX) from Neutral to Outperform. Six Flags shares rose 2.5% to $52.90 in pre-market trading.
  • Analysts at Goldman Sachs upgraded Lamb Weston Holdings Inc (NYSE: LW) from Neutral to Buy. Lamb Weston rose 3.5% to $61.03 in pre-market trading.
  • ...


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Biotech

Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

 

Consumer genetic testing customers stretch their DNA data further with third-party interpretation websites

If you’ve got the raw data, why not mine it for more info? Sergey Nivens/Shutterstock.com

Courtesy of Sarah Catherine Nelson, University of Washington

Back in 2016, Helen (a pseudonym) took three different direct-to-consumer (DTC) genetic tests: AncestryDNA, 23andMe and FamilyTreeDNA. She saw genetic testing as a way...



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Chart School

Silver Review

Courtesy of Read the Ticker.

The folks in the federal reserve will debase the US dollar currency to an extreme degree silver will finally lift off the floor.. 

Note: Readers should re watch the silver back screen news video, here.

The following video looks at price action and Wyckoff logic.

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Chart in video

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If gold moves, silver wi...

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Digital Currencies

Cryptos Are Crashing As Asia Opens, Bitcoin Back Below $8k

Courtesy of ZeroHedge. View original post here.

Having survived the day's bloodbath in US tech stocks, cryptos are crashing in the early Asian session, apparently playing catch-down to the day's de-risking.

While no catalyst is immediately evident, there are some reports noting 13 large global banks are preparing to launch digital versions of major global currencies next year, though we suspect this drop was more algorithmic that fundamental-driven.

...



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ValueWalk

More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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