Dow Theory Primary Tide Bear Market ?

A Primary Tide Bear Market for Stocks
by Robert W. Colby

The Dow Theory signaled a Primary Tide Bear Market on 8/2/11, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their closing price lows of June, 2011.

The S&P 500 Composite (SPX, 1,254.05) fell 32.89 points or 2.56% on Tuesday, August 2, 2011. SPX has declined every day for the past 7 days, losing 6.76% in total.


SPX broke down below the closing price lows of the year to date 2011, suggesting a major downtrend. Volume increased to confirm the price breakdown.

The S&P 500 violated support at its widely-followed 200-day SMA (now at 1,286 and still rising). As I said previously, “A close below the 200-day SMA might bring in still more selling pressure….” 

Stock Market Indicators

NASDAQ Composite/S&P 500 Relative Strength Ratio has been strong since bottoming on 6/20/11. Although the Ratio’s 50-day SMA remains below the 200-day SMA, the spread is closing and the SMAs may cross in days ahead. Long term, the trend remains bullish. Absolute price peaked on 5/2/11 at 2,887.75 (intraday) and appears to be consolidating. The NASDAQ Advance-Decline Line fell below 9-month lows on 8/1/11, suggesting weakness in the broad list of smaller-cap stocks.

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY)rose above 7-week highs on 8/1/11, suggesting a recovery attempt. The EEM/SPY ratio remains below the 200-day SMA, and the 50-day SMA remains below the 200-day SMA, so the trend is neutral. Absolute price is neutral: EEM broke down below 14-week lows on 6/23/11 but has stabilized since.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) has been in a major long-term downtrend since peaking on 11/27/07. The Ratio fell below its 50-day SMA on 8/1/11, remains below the 200-day SMA, and the 50-day SMA remains below the 200-day SMA. Absolute price has been weak since 5/2/11 and is bearish relative to the same SMAs.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) rose above the highs of the previous 5 months on 8/2/11, suggesting a medium-term recovery. But OEX/SPX fell below 28-year lows on 5/26/11, confirming its preexisting bearish long-term major trend.

The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) fell below 7-week lows on 8/2/11. IWM/SPY appears bearish for the short term and medium term.

The S&P Mid Cap 400/Large Cap Relative Strength Ratio (MDY/SPY) fell further below 5-month lows and key SMAs on 8/2/11. MDY/SPY appears bearish for the medium term.

Advisory Service Sentiment: There were 49.5% Bulls versus 21.5% Bears as of 7/27/11, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear Ratio rose to 2.30, which suggests bullish complacency when compared to 20-year range of 0.41 to 3.74, a median of 1.56, and a mean of 1.64.

VIX Fear Index jumped to 25.94 intraday on 7/29/11, the highest level of fear in 19 weeks. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.

The Dow Theory signaled a Primary Tide Bear Market on 8/2/11, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed below their closing price lows of June, 2011.

The S&P 500 Composite (SPX, 1,254.05) fell 32.89 points or 2.56% on Tuesday, August 2, 2011.

S&P 500 Cash Index Potential Resistance 
1576.09, high of 10/11/2007
1552.76, high of 10/31/2007
1523.57, high of 12/11/2007
1498.85, high of 12/26/2007
1440.24, high of 5/19/2008
1406.32, high of 5/29/2008
1381.50, Fibonacci 78.6% of 2007-2009 range
1370.50, high of 5/2/11
1359.44, high of 5/10/11
1356.48, high of 7/7/11
1347.00, high of 7/21/11

S&P 500 Cash Index Potential Support 
1249.05, low of 3/16/11
1246.73, high of 12/13/10
1238.81, Fibonacci 78.6% of 1,576.09 high
1235.05, high of 12/7/10
1232.85, low of 12/16/10
1228.74, Fibonacci 61.8% of 2007-2009 range
1227.08, high of 11/5/10
1173.00, low of 11/16/10
1171.70, low of 10/27/10
1166.74, low of 10/20/10
1159.71, low of 10/19/10
1,151.41, low of 10/7/10
1,131.87, low of 10/4/10
1122.79, low of 9/23/2010
1114.63, low of 9/15/2010
1110.88, low of 9/10/2010
1091.15, low of 9/7/2010
1039.70, low of 8/27/10
1039.31, Fibonacci 23.6% of June-Aug. 2010 range
1010.91, low of 7/1/2010
1008.55, Fibonacci 38.2% of 2009-2010 range
991.97, low of 9/2/2009
978.51, low of 8/17/2009
956.23, high of 6/11/2009
943.29, Gann 50.0% of 2009-2010 range
878.04, Fibonacci 61.8% of 2009-2010 range
874.17, Gann 62.5% of 2009-2010 range
869.32, low of 7/8/2009
805.17, Gann 75.0% of 2009-2010 range
785.13, Fibonacci 78.6% of 2009-2010 range
666.79, intraday low of 3/6/2009
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Fixed-Income Investments

Bond, iShares Barclays 20+ Year U.S. Treasury ETF (TLT) closed further above the highs of the previous 8 months on 8/2/11, confirming a significant uptrend. Support 96.31, 94.83, 93.14, 89.65, and 88.14. Resistance 102.27, 106.32, and 109.34.

Junk/Investment-Grade Corporate Bond ETFs Relative Strength Ratio (JNK/LQD) fell below 6-weeks lows and fell further below its 20-, and 50-, and 200-day simple moving averages on 8/2/11, confirming a significant bearish trend. JNK/LQD broke down below 9-month lows on 6/16/11.

U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year ETFs Relative Strength Ratio (TIP/IEF) rose above the highs of the previous 10 weeks on 7/28/11, suggesting a medium-term uptrend. TIP/IEF is rising above key SMAs of 20, 50, and 200 days. This means fixed-income investors currently prefer the inflation-protected TIPs over the unprotected 7-10 Year U.S. Treasury Note ETF (IEF).
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Tangible Assets, Commodities

U.S. dollar ETF (UUP) fell below the lows of the previous 11 weeks on 7/26/11, again confirming a significant downtrend. In addition, on 7/21/11, UUP fell below the lower boundary line of a Symmetrical Triangle Consolidation Pattern from the low at 20.84 on 5/4/11. Support 20.91 and 20.84. Resistance 21.18, 21.74, 21.86, and 22.21.

Agriculture, PowerShares DB Agriculture Fund ETF (DBA) rose above last week’s high on 8/2/11, but it fell below the lows of the previous 4 weeks on 7/29/11, suggesting a downtrend. Call it uncertain. In the longer time frame. DBA may be forming a bearish Descending Triangle Top Reversal Pattern since its high at 35.58 set on 3/4/11. Support 32.17, 31.65, and 31.46. Resistance 33.42, 34.83, and 35.58.

Crude Oil, United States Oil ETF (USO) fell further below the lows of the previous 4 weeks and closed further below its 20-, 50-, and 200-day simple moving averages on 8/2/11, again confirming a short-term downtrend. Support 35.14. Resistance 39.25, 40.74, and 45.60.

Gold, SPDR Gold Shares ETF (GLD) rose above all-time highs on 8/2/11. The dominant trend remains persistently bullish. In a world of too much debt, weak currencies, and self-serving politicians, investors around the globe seek the safety of gold as the only forever-true money. Support: 156.11, 154.10, 153.61, 147.19, 143.97, 143.42, and 142.55. Resistance: none.

Gold Mining Stocks ETF (GDX) Relative (to the Gold bullion ETF) Strength Ratio (GDX/GLD) fell further below its 50- and 200-day SMAs on 7/29/11. GDX/GLD fell below 27-month lows on 6/17/11, which was a bearish indication for the long term. The Ratio is down substantially since its peak on 4/8/11, and the main trend remains bearish.

Silver, iShares Silver Trust ETF (SLV) rose above 3-day highs on 8/2/11, suggesting a minor rally attempt. Longer term, Silver appears to have emerged on the bullish side of a 2-month Triangle Consolidation. Support 37.23, 34.02, and 31.97. Resistance: 44.71 and 48.35.

Silver/Gold ETFs Ratio (SLV/GLD) fell below 11-day lows on 8/1/11, confirming a minor pullback. The SLV/GLD Ratio remains in a bullish position relative to 50- and 200-day SMAs.

Copper, iPath DJ-UBS Copper TR Sub-Idx ETN (JJC ) consolidated gains in recent days. JJC rose above the highs of the previous 3 months on 7/19/11, confirming a preexisting medium-term uptrend. JJC has been in a bullish trend since bottoming at 51.13 on 5/11/11. Strength in Copper suggests confidence in the economic outlook, while Weakness suggests doubts about the future. Support 56.92, 55.50, 52.93, 52.12, 51.13. Resistance: 57.48, 59.06, 60.04, and 61.69.
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Spotlight on event stocks: Here is a stock screen I designed to pick out potential event stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.

Bullish Stocks: Rising Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name 

7.29% , MHP , MCGRAW HILL
8.48% , CVG , CONVERGYS
1.55% , TLH , Bond 10-20 Year US Treas, TLH
4.42% , OMX , OFFICEMAX INC., OMX
2.40% , IAU , Gold COMEX iS, IAU
2.41% , GLD , Gold Shares S.T., GLD
3.00% , TLT , Bond, 20+ Years Treasury, TLT
2.26% , DOG , Short 100% Dow 30, DOG
1.39% , NI , NISOURCE
2.32% , SIL , Silver Miners Global X, SIL
4.00% , SLV , Silver Trust iS, SLV
2.97% , MYY , Short 100% MidCap 400, MYY
0.90% , CL , COLGATE
0.83% , DBA , Agriculture DB PS, DBA
0.44% , ACE , ACE
1.45% , NEM , NEWMONT MINING
5.03% , QID , Short 200% QQQ PS, QID
0.22% , MUB , Bond Muni ATM-Free S&P iS, MUB
0.05% , SHV , Bond Treasury Short-Term iS, SHV
0.27% , UTH , Utilities H, UTH
0.07% , PFG , PRINCIPAL FINL
0.15% , WPO , Washington Post
0.05% , UIS , UNISYS

Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name 

-3.10% , JKL , Value SmallCap iS M, JKL
-3.13% , FPX , IPOs, First Tr IPOX-100, FPX
-3.10% , VB , Small Cap VIPERs, VB
-2.72% , IWZ , Growth LargeCap Russell 3000, IWZ
-2.91% , EFG , Growth EAFE MSCI, EFG
-4.07% , PKB , Building & Construction, PKB
-3.49% , PHO , Water Resources, PHO
-3.00% , JKG , MidCap Blend Core iS M, JKG
-4.15% , PEJ , Leisure & Entertainment, PEJ
-5.94% , HAR , Harman International
-8.49% , PH , PARKER HANNIFIN
-2.16% , IAH , Internet Architecture H, IAH
-3.15% , PWC , LargeCap Blend Dynamic PS, PWC
-4.44% , EXPD , Expeditors International WA
-3.48% , EIS , Israel MSCI iS, EIS
-2.62% , JKD , LargeCap Blend Core iS M, JKD
-2.83% , PZI , Micro Cap Zachs, PZI
-7.51% , HOT , STARWOOD HOTELS
-3.97% , EZU , EMU Europe Index, EZU
-6.52% , COH , COACH
-6.17% , ADM , ARCHER DANIELS
-8.24% , TIF , TIFFANY
-3.65% , EWN , Netherlands Index, EWN
-6.53% , RL , Polo Ralph Lauren
-3.08% , PXQ , Networking, PXQ
-4.93% , VIA , VIACOM INC. (New)
-2.02% , PIC , Insurance, PIC
-6.26% , VMC , VULCAN MATERIALS
-4.50% , HBAN , HUNTINGTON
-3.64% , RIG , TRANSOCEAN
-6.25% , THC , TENET HEALTHCARE
-3.76% , PXE , Energy Exploration & Prod, PXE
-3.75% , XBI , Biotech SPDR, XBI
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol 

4.00% Silver Trust iS, SLV
3.00% Bond, 20+ Years Treasury, TLT
2.41% Gold Shares S.T., GLD
2.32% Silver Miners Global X, SIL
0.92% Bond, 10 Year Treasury, IEF
0.84% Bond, Corp, LQD
0.83% Agriculture DB PS, DBA
0.66% Bond, TIPS, TIP
0.43% Bond, Aggregate, AGG
0.33% Bond EmrgMkt JPM iS, EMB
0.22% Bond Muni ATM-Free S&P iS, MUB
0.13% Bond, 1-3 Year Treasury, SHY
0.05% Bond Treasury Short-Term iS, SHV
0.00% Commodity Tracking, DBC
-0.18% Preferred Stock iS, PFF
-0.31% Bond Ex-US Treas, BWX
-0.40% Financial Preferred, PGF
-0.80% Japan Index, EWJ
-0.99% Malaysia Index, EWM
-1.23% Bond, High-Yield Corporate, HYG
-1.26% Bond, High-Yield Junk, JNK
-1.28% Indonesia MV, IDX
-1.30% Consumer Staples SPDR, XLP
-1.42% Switzerland Index, EWL
-1.53% Dividend High Yield Equity PS, PEY
-1.55% Utilities VIPERs, VPU
-1.64% Hong Kong Index, EWH
-1.67% Pacific VIPERs, VPL
-1.71% Utilities SPDR, XLU
-1.76% Frontier Markets Guggenheim , FRN
-1.83% Dividend International, PID
-1.85% Oil Fund PowerShares, DBO
-1.85% Dividend SPDR, SDY
-2.01% Singapore Index, EWS
-2.01% Dividend DJ Select, DVY
-2.08% Value LargeCap Dynamic PS, PWV
-2.09% Technology SPDR, XLK
-2.15% Health Care SPDR, XLV
-2.15% Oil, Crude, U.S. Oil Fund, USO
-2.15% Thailand MSCI iS, THD
-2.17% Taiwan Index, EWT
-2.18% India PS, PIN
-2.19% DIAMONDS (DJIA), DIA
-2.22% Info Tech VIPERs, VGT
-2.25% Dividend Appreciation Vipers, VIG
-2.26% Technology DJ US, IYW
-2.28% LargeCap Blend S&P 100, OEF
-2.45% Canada Index, EWC
-2.48% S&P 500 iS LargeCap Blend, IVV
-2.49% Energy & Nat Res iS GS, IGE
-2.50% United Kingdom Index, EWU
-2.51% Global 100, IOO
-2.52% Growth S&P 500/BARRA, IVW
-2.52% Value VIPERs, VTV
-2.53% Value EAFE MSCI, EFV
-2.53% QQQ Nasdaq 100 Trust, QQQ
-2.53% China 25 iS, FXI
-2.55% S&P 500 SPDRs LargeCap Blend, SPY
-2.56% LargeCap VIPERs, VV
-2.58% LargeCap 1000 R, IWB
-2.58% Value S&P 500 B, IVE
-2.60% Value 1000 Russell, IWD
-2.61% India Earnings WTree, EPI
-2.61% Growth 1000 Russell, IWF
-2.62% Energy DJ, IYE
-2.62% LargeCap Blend Russell 3000, IWV
-2.64% EAFE Index, EFA
-2.64% Blend Total Market VIPERs, VTI
-2.69% Global ex US ACWI iS, ACWX
-2.72% Financial SPDR, XLF
-2.72% Growth VIPERs, VUG
-2.72% Financial DJ US, IYF
-2.74% Energy Global, IXC
-2.75% Chile MSCI iS, ECH
-2.78% Energy SPDR, XLE
-2.80% Financial Services DJ, IYG
-2.81% Financials VIPERs, VFH
-2.82% Semiconductor SPDR, XSD
-2.82% Brazil Index, EWZ
-2.83% Pacific ex-Japan, EPP
-2.83% Networking, IGN
-2.88% SmallCap S&P 600, IJR
-2.88% Energy VIPERs, VDE
-2.88% Microcap Russell, IWC
-2.89% Emerging 50 BLDRS, ADRE
-2.90% Value SmallCap Russell 2000, IWN
-2.90% Growth BARRA Small Cap 600, IJT
-2.90% Semiconductor iS IGW, SOXX
-2.90% Value MidCap Russell, IWS
-2.90% Metals & Mining SPDR, XME
-2.91% Growth EAFE MSCI, EFG
-2.92% Emerging VIPERs, VWO
-2.93% China LargeCap Growth G D H USX PS, PGJ
-2.93% Real Estate US DJ, IYR
-2.96% Value SmallCap S&P 600 B, IJS
-2.97% Value MidCap S&P 400 B, IJJ
-2.98% Value SmallCap VIPERS, VBR
-2.99% MidCap S&P 400 SPDRs, MDY
-3.01% Turkey MSCI iS, TUR
-3.01% Australia Index, EWA
-3.02% Growth MidCap 400 B, IJK
-3.03% MidCap S&P 400 iS, IJH
-3.04% LargeCap Blend S&P=Weight R, RSP
-3.04% Europe 350 S&P Index, IEV
-3.08% Emerging Markets, EEM
-3.09% Materials SPDR, XLB
-3.10% MidCap Russell, IWR
-3.10% Small Cap VIPERs, VB
-3.11% European VIPERs, VGK
-3.12% SmallCap Russell 2000, IWM
-3.14% Small Cap EAFE MSCI iS, SCZ
-3.19% REIT VIPERs, VNQ
-3.21% REIT Wilshire, RWR
-3.24% Realty Cohen & Steers, ICF
-3.27% Growth MidCap Russell, IWP
-3.29% South Korea Index, EWY
-3.31% Growth SmallCap VIPERs, VBK
-3.31% South Africa Index, EZA
-3.32% Growth SmallCap R 2000, IWO
-3.33% Latin Am 40, ILF
-3.33% Capital Markets KWB ST, KCE
-3.36% Basic Materials DJ US, IYM
-3.48% Industrial SPDR, XLI
-3.49% Water Resources, PHO
-3.51% Belgium Index, EWK
-3.57% Transportation Av DJ, IYT
-3.60% Mexico Index, EWW
-3.65% Netherlands Index, EWN
-3.65% Telecom DJ US, IYZ
-3.68% Russia MV, RSX
-3.73% France Index, EWQ
-3.75% Biotech SPDR, XBI
-3.78% Consumer Discretionary SPDR, XLY
-3.88% Italy Index, EWI
-3.94% Spain Index, EWP
-3.97% EMU Europe Index, EZU
-4.23% WilderHill Clean Energy PS, PBW
-4.28% Germany Index, EWG
-4.40% Homebuilders SPDR, XHB
-4.99% Austria Index, EWO
-5.30% Sweden Index, EWD

 

About the Author

Robert W. Colby is managing director of Colby Research in New York and the author of The Encyclopedia of Technical Market Indicators, Second Edition, which has become the standard reference work throughout the world for technical indicators and trading systems design. Colby’s firm develops research methods and custom investment decision-making systems for institutional and private clients. Colby also writes daily technical market analysis and strategy comments for an experimental educational service exploring investment strategy ideas for professional investors and traders. He previously was a proprietary trader at Schonfeld Securities with complete profit-and-loss responsibility for one of the firm’s equities trading accounts and was senior technical research analyst and vice president at Smith Barney in New York in the 1980s, writing daily and weekly reports and making thousands of presentations to institutional and individual investors. He created an objective technical and quantitative ranking system for stock selection across the full spectrum of industry groups, foreign and domestic stocks. A graduate of Ohio State University with a BS in finance, Colby is a Chartered Market Technician (CMT) and a member of the Market Technicians Association since 1980. He also has been a part-time professor at New York University and NewYork Institute of Finance, developing several new courses.

Wednesday, August 3rd, 2011 Uncategorized

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