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Earlier this week, Richard Russell wrote that he noticed a Dow Theory bear market signal “nobody seemed to notice it nor did any analyst appear to be aware of it.” Here is the signal Russell is speaking of.Dow Theory — The D-J industrial Average recorded a high of 13,279.32 on May 1, 2012. This Dow high was not confirmed by the Transports. The two averages then turned down and broke below their April lows. This action confirmed that a primary bear market is in progress — it was a textbook bear signal.”
Mark Hulbert of MarketWatch caught up with two other Dow Theorists’ who could explain why no one else caught the signal: there never was a bear market signal.
Business Insider reached out to Richard Moroney of DowTheory.com.
“Yes, we don’t think a sell signal has been reached,” he said.
In his latest newsletter he writes, “Some argue the Dow Theory turned bearish in mid-May, when the Industrials and Transports closed below the levels reached on April 10. We see three problems with this line of reasoning.”
We paraphrase here.
- The decline in the Dow Industrials from April 2-to-April 10 fell short of a “typical secondary correction based on both duration and extent.”
- The April 10 close in the Dow Transports was low, but higher than the March 6 close.
- “The most useful part of the Dow Theory — the idea that no price movement is worthy of consideration unless confirmed by both averages — must be overlooked” in order to suggest that a bearish Dow Theory signal has been confirmed.
You can get Moroney’s full details at DowTheory.com.