The Dow Theory non-confirmation that began forming in February has been a
warning. The Great Dow Theorist Robert Rhea once said, "a wise man
leaves the market alone when the averages do not agree." Few really
understand Dow Theory and it seems that most people who are familiar with it
tend to discount it as some antiquated relic of the past. The current market
environment and the developments since February are a perfect example. The
Dow Theory has been warning, but as is always the case, those warnings have
not been understood or heard.
Let me begin by saying that according to orthodox Dow Theory, there is no
such thing as a Dow Theory "buy" or "sell signal." That's
right! If you see that terminology in an article, it is incorrect. Per the
original writings from our Dow Theory Founding Fathers, which I have, they
anticipated the trend changes, based on other factors, and they would
establish positions at what they termed "buy" or "sell
spots." Yes, that is correct. They actually would front run the
anticipated Trend Change. It was then the Bullish or Bearish Primary Trend
Change that confirmed their previously established positions.
In any event, the requirement for a Bearish Primary Trend Change is a close
by both the Industrials and the Transports below the close of the previous
Secondary Low Points. Admittedly, one of the inherent problems with Dow
Theory is the proper identification of Secondary High and Low Points. One
reason for this is that Dow Theory does not offer a means of quantification.
But, cycles do and for that reason, my cycles work gives me a method of
properly identifying Secondary High and Low Points in accordance with Dow
Theory as well as the means of when these points should occur. Therefore, I
have known, as have my subscribers, that the previous Secondary Low Points
occurred in conjunction with the July 8th closing lows. This said, as a
result of the August 21, 2015 close, we now have an orthodox Dow Theory
Bearish Primary Trend Change in place. According to Dow Theory, once a
Primary Trend Change occurs, that Primary Trend is assumed to be "in
force" until it is "authoritatively reversed" by an opposing
trend change.
Now, it is going to be interesting to see how the talking heads try to
minimize and spin the events of this past week. I can assure you that it will
not be recognized by the mainstream for what it really is. For one, they
don't know and if they did they would not tell you. Did they warn you of the
equity top in 2000 or in 2007? What about the housing top in 2005 or the top
in oil in 2008 or 2013? No! They did not. It doesn't work that way. Rather,
the sheep are always told that everything is going to be okay. I warn you now
that we are headed into an extremely deceptive time for those that do not
understand the environment in which we are operating. There will be sharp
rallies and sharp declines along the way and every time a low comes in, the
perception, hope and the spin will be that all is now well. If the statistical
expectations are achieved, you cannot imagine what lies ahead, the level of
deception, the frustration and ultimately the devastation that will
ultimately come with this reckoning. The Dow Theory has spoken and you have
been warned! It is now the cyclical structure, the cyclical phasing, the
timing bands in which the lows are expected to occur, the degree of the
cyclical lows and the associated statistics that are key.
