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.
If you are interested in further research with regard to what lies ahead, that research is available at Cycles News & Views. https://cyclesman.com