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Name: Tim Wood

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Bio: Tim Wood specialises in Dow Theory and Cycles Analysis - Should you be interested in analysis that provides intermediate-term turn points utilizing the Cycle Turn Indicator as well as coverage on the Dow theory, other price quantification methods and all the statistical data surrounding the 4-year cycle, then please visit www.cyclesman.info for more details. A subscription includes access to the monthly issues of Cycles News & Views covering the stock market, the dollar, bonds and gold. I also cover other areas of interest at important turn points such as gasoline, oil, silver, the XAU and recently I have even covered corn. I also provide updates 3 times a week plus additional weekend updates on the Cycle Turn Indicator on most all areas of concern. I also give specific expectations for turn points of the short, intermediate and longer-term cycles based on historical quantification.

Posts by Tim Wood:

Manipulation

Written by Tim Wood
May 22nd, 2011 at 5:55 pm

As I have stated all along, my research suggests to me that the rally out of the March 2009 low has been a bear market rally. Nothing has occurred to change that point of view. In light of that view, I have received a number of e-mails asking about manipulation and if “they” could prevent such an event from happening.

All throughout the period between 2003 and 2007 I explained that we were seeing a stretched 4-year cycle. I also explained that the efforts by the powers that be to hold things together would ultimately only serve to make matters worse. There is no doubt that the manipulative efforts seen during this period contributed in a very negative way to the credit and banking crisis. In my eyes, this was largely accomplished through the unscrupulous lending practices and mass financial irresponsibility, resulting in the housing bubble, which Greenspan tried to tell us did not exist and which I called, in writing, in late 2005, before the top became apparent.

In October 2007 the equity markets peaked. My subscribers were informed of that fact as we knew what we were looking for and as it occurred we knew exactly what was happening. As the decline took root the manipulative efforts became even more drastic than what was seen into the 2002 low. But, cyclically, none of this mattered as the market continued lower until the cyclical events required to make the 4-year cycle low and the Phase I low were achieved. It was from that point that this bear market rally began. In the eyes of most people and the politicians, they believe that they have “saved” the market and that the economy has bottomed. This is not so. The market and the economy merely reached a temporary bottom in March 2009, in which the rally that should ultimately prove to separate Phase I from Phase II of the bear market began. This rally has served to give the public a false sense of security and hope that the economy is now on the road to recovery. This rally has also given the powers that be a false sense of power in that they think they have every thing under control as a result of their manipulative efforts. According to the historical bull/bear market relationships and the longer-term phasing of Dow theory, this is not likely the case. Once the proper setup occurs, the bear will have his opportunity to cap this advance. Unfortunately, in the meantime, the hope and hype of Wall street and Washington keeps the public blindly optimistic.

I have gone back to 1896 and have identified a very specific cyclical “DNA Marker” that has occurred at every major market top. If the Dow theory phasing is right about this being a bear market rally, this DNA Marker will appear in accordance with very specific statistics, which will set the stage for the suspected Phase II decline in this ongoing secular bear market to begin. These details are being covered in my monthly research letters. Once this DNA Marker is in place it won’t matter what the powers that be do or say because the bear will have his way. The bailouts were a waste of money and were only associated with a temporary low. The powers that be cannot manipulate the entire world out of the natural forces and cyclical events that have to play out. Their efforts only serve to make matters worse and to postpone the inevitable. Again, the most recent example of this occurred as a result of the efforts to keep things going between 2003 and 2007. Were things not worse in 2008 and early 2009 than they were in 2001 and 2002? Yes, they were. Did the efforts between 2003 and 2007 prevent the downturn into the 2009 low? Did “they” warn you of the downturn in 2000, or of the housing bubble, or of the 2007 top? Have the efforts in 2008, early 2009 and the time since not been more extreme than they were in the 2003 to 2007 period? Yes, they have been and I look for the fall out from those extreme efforts to be worse than the fallout of the 2003 to 2007 efforts. So, if we see this DNA Marker occur, then we will have the proper setup in place for a meaningful correction. Such correction should at least correspond with 4-year cycle top and the decline into the next 4-year cycle low. The greater risk to the market is that if the longer-term Dow theory phasing is correct, this should also correspond with the Phase II decline. Just as I warned of the 2000 top, the 2007 top, the top in housing in 2005 and of the top in commodities in 2008, I am now warning that another surprise is coming. It is the appearance of the proper setup that will set the wheels into motion and the manipulation is once again not going to matter.

The following text on Manipulation was taken from Robert Rhea’s book, The Dow Theory.

“Manipulation is possible in the day to day movement of the averages, and secondary reactions are subject to such an influence to a more limited degree, but, the primary trend can never be manipulated.

Hamilton frequently discussed the subject of stock market manipulation. There are many who will disagree with his belief that manipulation is a negligible factor in primary movements, but it should always be remembered that he had, as a background for his opinions, a most intimate acquaintance with the veterans of Wall Street, and the advantage of having spent his life in accumulating facts pertaining to financial matters.

The following comment, taken at random from his many editorials, affords convincing proof that his views on the subject of manipulation did not vary:

‘A limited number of stocks may be manipulated at one time, and may give an entirely false view of the situation. It is impossible, however, to manipulate the whole list so that the average price of 20 active stocks will show changes sufficiently important to draw market deductions from them.’ (Nov. 29, 1908)

‘Anybody will admit that while manipulation is possible in the day-to-day market movement, and the short swing is subject to such an influence in a more limited degree, the great market movement must be beyond the manipulation of the combined financial interests of the world.’ (Feb.26, 1909)

‘…the market itself is bigger than all the ‘pools’ and ‘insiders’ put together.’ (May 8, 1922)

‘One of the greatest of misconceptions, that which has militated most against the usefulness of the stock market barometer, is the belief that manipulation can falsify stock market movements otherwise authoritative and instructive. The writer claims no more authority than may come from twenty-two years of stark intimacy with Wall Street, preceded by practical acquaintance with the London Stock Exchange, the Paris Bourse and even that wildly speculative market in gold shares, ‘Between the Chains,’ in Johannesburg in 1895. But in all that experience, for what it may be worth, it is impossible to recall a single instance of a major market movement which depended for its impetus, or even for its genesis, upon manipulation. These discussions have been made in vain if they have failed to show that all the primary bull markets and every primary bear market have been vindicated, in the course of their development and before their close, by the facts of general business, however much over-speculations or over-liquidation may have tended to excess, as they always do, in the last stage of the primary swing.’ (The Stock Market Barometer) ‘…no power, not the U. S. Treasury and the Federal Reserve System combined, could usefully manipulate forty active stocks or deflect their record to any but a negligible extent.’ (April 27, 1923)

‘The average amateur trader believes the stock market is guided in its trends by a certain mysterious ‘power,’ this belief being the one factor, next to impatience, most responsible for his losses. He reads tipster sheets avidly; he scans the newspapers industriously for news likely, in his opinion, to change the trend of the market. He does not seem to realize that by the time the news of real importance is printed, its effect, so far as the basic trend of the market is concerned, has long ago been discounted.’

‘It is true that a flurry in the price of wheat or cotton may influence the day to day movement of stock prices. Moreover, sometimes newspaper headlines contain news which is construed as bullish or bearish by market dabblers, who collectively rush in to buy or sell, thus influencing or ‘manipulating’ the market for a short period. The professional speculator is always ready to help the movement along by ‘placing his line’ while the little fellow timidly ‘lays out’ a few shares; then, when the little fellow decides to increase his commitments, the professional begins to unload and the reaction ends, and the primary movement is again resumed. It is doubtful if many of these reactions would ever be caused by newspaper headlines alone unless the market was either overbought or oversold at the time—the ‘technical situation’ so dear to the hearts of financial news reporters.’

‘Those who believe the primary trend can be manipulated could, no doubt, study the subject for a few days and be convinced that such a thing is impossible. For instance, on September 1, 1929, the total market value of all stocks listed on the New York Stock Exchange was reported to have amounted to more than $89,000,000,000. Imagine the money which would have been involved in depressing such a mass of values even 10 per cent!’

Today’s total market cap is some 50,000,000,000,000 and QE 2 was valued at 600,000,000,000, which is 1.2 percent of the estimated total US market cap. So again, the manipulation will not matter.

 

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I have begun doing free market commentary that is available at www.cyclesman.net The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops. Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it. These details are covered in the monthly research letters as it unfolds. I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical-based analysis plus updates 3 times a week.

 



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Dow Theory Update

Written by Tim Wood
May 4th, 2011 at 2:15 pm

According to Dow theory, once confirmed, the trend is considered to be in force until it is authoritatively reversed by a joint movement above or below the previous secondary high or low points. In bull markets a joint move by the averages below the previous secondary low points is required to reverse the bullish trend and in bear markets a joint move above the previous secondary high points is required. It is not a requirement of Dow theory that these movements occur on the same day. But, when one average fails to confirm the movement of another average, above or below a previous secondary high or low point, a Dow theory non-confirmation is born.

Non-confirmations typically do occur at major trend reversals, but at the same time a non-confirmation can exist for a period of time, only to be corrected at a later date as the averages eventually confirm one another. Thus, these non-confirmations do not always mean that a trend change is inevitable, but they do serve as warnings. The key with Dow theory comes from having enough experience and understanding of Dow theory, which comes largely from studying the works of our Dow theory founding fathers as a basis, to understand what constitutes a secondary high or low point.

Anyway, as the averages pushed into the secular bull market top in 2007, a Dow theory non-confirmation began to take root. Both averages pushed into joint highs in July 2007. It was then from that high that the averages both declined into their August 2007 secondary low points and at that point they were in gear with each other. From the August 2007 secondary low points, a new secondary movement began and it was from that low that the Industrials moved to its all time closing high on October 9, 2007 at 14,164.53. However, the Transports, failed to confirm this move and from that non-confirmation both averages moved down into their next secondary low point, which occurred in January 2008 for the Transports and in March 2008 for the Industrials. It was the decline below the August secondary low points that occurred in November 2007, on the way down that served to authoritatively reverse the previous primary bullish trend by giving us a Dow theory bearish trend confirmation.

Note on the chart below that the decline into the January/March 2008 secondary low point created a downside non-confirmation. It was then from these secondary low points that the movement into the next secondary high began. This time, the Transports moved to a new all time high on June 5, 2008 at 5,492.95. However, because the Industrials failed to confirm, with a joint movement above their previous secondary high point, the previously established bearish primary trend remained intact and another upside non-confirmation was formed.



Moving forward to today, we have a situation in which the Transports have moved to another all time high, while the Industrials have not. This can be seen in the chart above. It seems that many are erroneously referring to this as a long-term Dow theory non-confirmation, which allegedly has some dire consequences. This is not true. The fact that the Transports have moved above their previous all time high, which occurred in 2008, while the Industrials have not moved above their 2007 all time high, is of no consequence in accordance with Dow theory. This does not constitute a legitimate Dow theory non-confirmation. With Dow theory, it is the joint movement above or below previous secondary high and low points that is important and not a previous high or low point from some 3 years prior. As the averaged topped in 2007 and 2008, this was the case. Also, this is occurring after the decline into the 2009 Phase I low.

From a current Dow theory perspective it is the joint close above the recent secondary high point that served to reconfirm the existing bullish primary trend change, which has been in effect since July 2009 as the averages began moving up out of the Phase I low. Now, that said, it is important to also understand that this bullish primary advance is occurring within the context of what still appears to be a longer-term secular bear market. In accordance with Dow theory, bull and bear markets unfold in three phases with important counter-trend movements separating these three phases. According to the longer-term phasing aspects of Dow theory, the rally that began at the 2009 low should prove to be the rally separating Phase I from Phase II of this longer-term secular bear market. Thus, my longer-term bearish view has not changed. But, the point to this article is to clarify that the fact the Transports have moved to an all time high while the Industrials have not does not constitute a legitimate Dow theory non-confirmation and to draw the conclusion that it has some longer-term meaning in accordance with orthodox Dow theory is wrong. The longer-term warning in accordance with Dow theory comes from the Phasing aspects and not this alleged “non-confirmation.”

In order to give the longer-term perspective on this phasing, I have also included a chart of the 1966 to 1974 secular bear market below. It was the decline out of the 1966 top into the 1966 low that marked the Phase I decline during this period. The 26 month rally that followed into the 1968 top was the rally separating Phase I from Phase II and the decline from late 1968 into1970 marked the Phase II decline. The rally from mid-1970 into January 1973 was the rally separating Phase II from Phase III and the decline from January 1973 into the 1974 low was the final Phase III decline. I think that our current situation is synonymous with the 1966 to 1968 period. Again, it is the phasing aspect of Dow theory that has longer-term negative consequences for the market. I have identified very specific traits, which I refer to as DNA Markers, that have occurred at every major top since the inception of the averages in 1896 and these details are covered in my research letters. Once the DNA Markers properly present themselves, the Phase II top will be at hand. I warned of these DNA Markers as the markets moved into the 2007 top. Some listened and some did not. I hope you are listening this time.



I have begun doing free market commentary that is available at www.cyclesman.net The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops. Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it. These details are covered in the monthly research letters as it unfolds. I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical-based analysis plus updates 3 times a week.



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Sentiment and a Quick Dow Theory Update

Written by Tim Wood
February 26th, 2011 at 3:10 pm

Sentiment alone is not a timing tool for the market. But, it is useful in telling us when too many people get on the same side of the boat, which in turn tells us that conditions have ripened for a turn. I have said many times of late that the recent sentiment environment reminded me of the 2006 and 2007 period. In the chart below I have included the S&P 500 and a sentiment indicator that is comprised of the Investor Intelligence Bulls divided by Bulls plus Bears. In other words, this shows us the percentage of Bulls to total Bulls and Bears. Now, note on the chart below that during the 2007 period when this reading rose above 72%, an intermediate-term top soon followed. Now note that since the March 2009 low, every time the percent of Bulls rose above the 72% level an intermediate-term top has been at hand. Again, sentiment readings are not timing tools, but this is telling us that conditions have been ripe for another intermediate-term top and based on the price action this past week, that top may very well be in place. I will have to look at other indicators after the weekly close in order to determine if an intermediate-term sell signal has indeed been triggered and I will report this in my subscriber updates. If it proves the market has in fact made an intermediate-term top, then the correction that follows should carry this sentiment indicator down toward the 50% mark. More importantly, once price moves into our timing band for the next intermediate-term cycle low, along with these lower sentiment readings we will be able to zero in on the next intermediate-term low and buying opportunity.



In the next chart below I have included both the Dow Jones Industrials and the Transports. In light of the recent weakness, the Transports have shown more relative weakness than the Industrials. I have again received questions as to whether this relative weakness has any forecasting value from a Dow Theory perspective. The answer is no. When considering Dow theory it is the movement of both averages above or below previous secondary high points that is important. To consider only one average or to try to infer a meaning from the movement of only one average is not Dow theory.

If this correction should carry both averages below the January 28th lows, on a closing basis, then the next error I see coming from a Dow theory perspective will be that people will be mistakenly calling such price action a Dow theory “Sell Signal.” Granted, any violation of the January lows should be followed by further weakness. But, any such weakness will be associated with a decline into the next Secondary Low Point and not a Dow theory “sell signal.” So, I want to warn you ahead of time, do not listen to any such comments that you may see or hear in regard to any such weakness because it will not be correct in accordance with orthodox Dow theory.



 

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I have begun doing free market commentary that is available at www.cyclesman.info/Articles.htm The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops. Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it. These details are covered in the monthly research letters as it unfolds. I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical-based analysis plus updates 3 times a week.

 



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Interest Rates, the Fed and Equities

Written by Tim Wood
December 11th, 2010 at 5:46 pm

Of late it seems that rising interest rates and the Fed’s ability to “keep rates low” have become a focal point for many of the news commentators. The vast majority of the public believes that the Fed is actually controlling interest rates and as a result that they are controlling the credit markets as well as the equity markets. I am about to show you the proof that the Fed follows the short-term credit market and that in reality they do not lead. The data simply does not support the widely held belief that the Fed is in “control” of the markets. I realize that this may come as a shock to you, but reality is what it is. The data speaks for itself.

In the first chart below is the Discount Rate, plotted in the upper window, and the 3-month T-bill rate is plotted in the lower window along with my Trend Indicator. I realize that you cannot tell it from this chart because given the time period that is covered the details are lost, but the fact is that the 3-month T-bill rate moves first and the Fed simply follows. Given that this is a well documented fact, with a 60 year history, I am simply amazed by the fact that so many people put so much emphasis on what the Fed does and says in regard to interest rates. Fact is, the media propaganda machine has conditioned the vast majority of the public that they somehow control rates and as a result control the markets. If you go to www.cyclesman.info/Fedfollows.htm I have posted more detailed charts. All you have to do is start at the beginning and move forward in time and you will clearly see that the Fed follows the short-term credit market.

The one exception I found was at the February 2010 increase in which the Fed raised rates .25 point prior to my Fed model officially signaling that we had moved into a rate hiking environment. But, even then my Fed model was telling me that the rate cutting cycle had ended and it was very close to an upturn signaling that we had moved back into a rate hiking cycle. As we move into 2011, you can clearly see in the chart below that the Trend Indictor has turned up on the 3-month T-bill. This tells us that we are in the early stages of a rate hiking cycle, which means that the bias for short-term rates is to the upside. If the Trend Indicator remains positive, rates will begin to rise and if rates begin to rise, the Fed will again be forced to follow.



Now that this fact has been established I want to talk about another myth. I think you will also agree that the perception is that the Fed saved the market back in 2001 and 2002 with their aggressive rate cuts. Well, we just established the fact that the Fed follows 3-month T-bill rates. Fact is, the 3-month T-bill rate fell from 6.22% in November 2000 to 5.70% in December 2000. It was then at the January 2001 Federal reserve meeting that the Fed made the first cut of the Discount Rate taking it from 7.50% to 7.25%. Both the stock market and the 3-month T-bill rate continued to fall and the Fed continued to more aggressively cut rates to keep up with the falling T-bill rate. Now, look at the chart below. In the upper window of this chart I have again plotted the Discount Rate. In the lower window I have plotted the S&P 500. As you can see, the rate cuts did nothing to stop the decline. From the time the rate cuts began in January 2001 the S&P 500 fell from 1,283 all the way down to its final low at 768. This was a 40% slide in the S&P in spite of the rate cuts. Fact is, these rate cuts did absolutely nothing to hold the market up and in many cases they made multiple cuts and still the market fell. This was particularly true from early 2001 into the fall of 2001. There was a bounce after the 911 bottom, but even the rate cuts following 911 did not prevent the continued decline into the 4-year cycle low in 2002. I don’t have the data during the 1920′s and 30′s, but I do know that the Fed also cut rates and it did nothing to save the market then either.



As the stock market began clawing its way back up out of the 2002 4-year cycle low, the 3-month T-bill continued to decline into June 2003. As a result, the Fed continued cutting rates even further as they continued following the 3-month T-bill rate down. If you go back to the charts posted at www.cyclesman.info/Fedfollows.htm you can see that the 3-month T-bill rate bottomed at .82% in June 2003. From this point rates leveled off and in May 2004 rates began to climb. In mid-June 2004 the 3-month T-bill rate had advanced to 1.39%. Then in July 2004 the Fed began to raise rates and continued to do so as they once again followed the T-bill rate higher. It was not until the 3-month T-bill rate got hit hard in August 2007 that the Fed began cutting rates and for the record, the Trend Indicator turned down in June 2007 telling us that we had entered into another rate cutting cycle. Also, for the record, the decline by equities that began in October 2007 was associated with the 4-year cycle top that was stretched due to the liquidity bubble to “fix” everything following the decline into 2002. We all know how that ended with the decline into the 2009 low and once again as you can see in the chart above, the Fed cut rates all the way down. Then, the propaganda spread by the media, was once again that they were cutting rates in order to help save the market. But, if that were the case it obviously did not work any better than it did in association with the decline into the 2002 low. Fact is, when you look at the charts, the Fed was once again merely following the lead of the 3-month T-bill. As the 3-month T-bill hit bottom in 2009, the Fed stopped cutting rates. Of course, the story is that they stopped cutting rates because the equity market hit bottom, which is more propaganda. Fact is, the rate cuts did nothing to stop the market from falling, which again was the case into the 2002 low, and they stopped cutting rates because the 3-month T-bill found a bottom.

Now, here we sit with interest rates rising. My subscribers have known about the structural issue with bonds that set the stage for this round of rising rates for months. I reported at the close of 2009 that we were entering into an environment of rising rates. It was then in February 2010 that the Fed made a proactive rate increase as my Fed model was bottoming. This model has now been positive since March and if something doesn’t change, this model is telling us that the propensity is still toward higher rates as we move into 2011. The question now on the news is, what will rising rates do to the equity markets?

If we push the mainstream opinion to the side and look at the historical facts, we find that there are times in which equities have advanced in conjunction with rising rates and there are times in which equities have declined in conjunction with rising rates. To say that rising rates are automatically good or bad for equities is putting the cart before the horse. A complete study of the correlation between interest rates and equity price is outside of the scope of this article, but to give you just a couple of examples, during the 1966 to 1968 bear market rally, interest rates rose. During the 1970 to 1973 bear market rally interest rates declined. During the 1973 to 1974 meltdown by equities into their final bear market bottom, interest rates rose. During the 1982 to early 1994 bull market in equities, interest rates declined, but then from mid-1994 into 2000 they rose. Between 2004 and 2007 equities advanced as rates again rose and the recent advance seen by equities out of the 2009 low has occurred with interest rates basically flat.

So, the fact that we are now in a rate hiking cycle and interest rates are beginning to move up no doubt begs the question as to whether this will be good or bad for equities. But, my take is rather than to draw an erroneous conclusion, we should look at the markets independently. Until my Fed model changes, I know that the bias for rates is to the upside. As for equities, I have identified a common cyclical DNA Marker/trait that has occurred at every major top since 1896. Thus, it is my opinion that the answer to the question with interest rates and the market lies in simply taking the markets independently of one another and to implement the tools that we have and in doing so these tools will tell us.

I have begun doing free market commentary that is available at www.cyclesman.info/Articles.htm The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops. Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it. These details are covered in the monthly research letters as it unfolds. I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week.



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Dow Theory Update

Written by Tim Wood
November 13th, 2010 at 2:18 pm

When it comes to Dow theory, there seems to be no shortage of opinion, but most often, that opinion is wrong. This is largely because of the fact that very few people have actually read and studied the original material by Charles H. Dow, William Peter Hamilton and Robert Rhea. Without that background, one cannot truly understand Dow theory.

Of late I have been asked whether or not the bettering of the April highs triggered a so-called “Dow theory buy signal.” Before I answer this question, it deserves a full explanation.

First let me say that in accordance with orthodox Dow theory, there is no “buy” or “sell” signal. That’s right. Contrary to popular belief, there is no such thing. The Dow theory founding fathers would anticipate trend changes just like we do. They would use minor negative non-confirmations and negative structural developments that hinted of a trend change as “Sell Spots.” At bottoms they would do the exact opposite using minor positive non-confirmations and positive structural developments that hinted of an upward trend reversal as “Buy Spots.”

They then looked for the Industrials and what was then the Rails, to close above their previous “Secondary High Point” in the case of a bottom, or the previous “Secondary Low Point” in the case of a top, in order to confirm that a “Primary Trend Change” had occurred. It is clear from reading the original writings that they did not wait for these Primary Trend Changes to occur before establishing positions. The problem with the interpretation today is that people do not understand what constitutes a secondary high or low point and they erroneously interpret moves above and below what is perceived as a secondary high or low point to be a “Dow theory Buy or Sell signal.” Fact is, there is no such thing as a “Dow theory Buy or Sell signal.” According to the original writings, there were Buy and Sell Spots, which were based on minor structural developments, in anticipation of turns and there are Primary Trend changes.

Now, I want to discuss the current situation with Dow theory. Fact is, the most recent Secondary low point occurred at the July low. Please refer to the first chart below. In typical fashion, most everyone was calling the move into early July a “Dow theory sell signal” because of the move below the May and June lows, which were erroneously perceived as having marked the previous Secondary Low Point. I explained to my subscribers as price was moving down into the July low that this was NOT a “sell signal” nor was it a Dow theory Primary Trend change and that price was in fact making a Secondary Low Point. As price moved out of that low it bettered the June high and I then received questions as to whether or not a “buy signal” had occurred. The same was also true when the August high was bettered. Now that the April high has been bettered I’m seeing the same thing. The best way to stay abreast of the Dow theory developments in real time and even to know ahead of time what we are expecting and what a particular move means is through my monthly research letter and short-term updates. Anyway, the bettering of the April high merely served to reconfirm the already existing bullish Primary Trend change, which has been intact in association with the upturn out of the March 2009 low, for well over a year now.



I have stated in every article posted here since the rally out of the March 2009 low began that this is a bear market rally. I have stated here in every article since the bullish Primary Trend change in July 2009 occurred that the Primary Trend in accordance with Dow theory has been bullish. That has not changed. I have also stated here, ever since the rally out of the 2009 low began, that, based on the phasing aspects of Dow theory, this rally should ultimately prove to be the rally separating Phase I from Phase II of a much longer-term secular bear market. This view has not changed either. So, to clarify, on one hand we have had and continue to have a bullish Primary Trend in accordance with Dow theory and the bettering of the April high only reconfirmed the existence of that trend. But, in the bigger picture, the Dow theory phasing tells us that this rally is in all likelihood a bear market rally within a much longer-term secular bear market.

I have included a chart below of the 1966 to 1974 bear market period. The decline into the Phase I low is noted in red. The bear market rally that separated Phase I from Phase II is noted in green and carried the averages up for some 26 months into that top. In the process of this advance, a Dow theory bullish Primary Trend change occurred, just as we have seen with the current advance. But, ultimately the phasing proved correct and the Phase II decline carried the averages to new lows. Those that understood the value and phasing aspect of Dow theory would have understood what was occurring.



Then, from the Phase II low, the averages advance some 32 months. This rally was also a bear market rally separating Phase II from Phase III of the bear market and this time around the Industrials were able to move to a new all time high. In the process there was of course, another Dow theory bullish Primary Trend change. However, the phasing aspect of Dow theory was again correct and once this rally ran it course, the averages again headed lower. Note that this decline carried the Industrials to new lows, but not the Transports. As a result, a Dow theory non-confirmation occurred in conjunction with the Phase III low and great values.

So, the moral of the story is that the bettering of the April high was not a so-called “Dow theory Buy signal.” In reality it only served to reconfirm the existing bullish Primary Trend change. Also, I continue to believe that we are in a similar pattern to that of the 1966 to 1974 period. I believe that the rally out of the 2009 low is synonymous with the advance out of the 1966 low. One difference now is that the bull market period that preceded the 1966 top was only 24 years and the bear market period ran 8 years, which was the historical one-third the duration of the preceding bull market. In this case, the preceding bull market ran 33 years. Therefore, we should be dealing with a bear market of approximately 11 years. So, the unwinding of this bear market should have much further to go. Perhaps, QEII will keep this rally going a while longer. But, I don’t think that QEII or QEIII or even QEIV will ever be able to ultimately save the market from the natural forces. All these efforts are doing are making matter worse and if anything, postponing the inevitable.

I have begun doing free market commentary that is available at www.cyclesman.info/Articles.htm The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops. Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it. These details are covered in the monthly research letters as it unfolds. I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week.



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Dow Theory the Elections and QE II

Written by Tim Wood
October 31st, 2010 at 3:49 am

The primary trend change associated with the rally out of the March 2009 Phase I low still remains intact in accordance with Dow theory.   We do have other tools and the DNA Markers that have occurred at every top since 1896 that are also very important and are being closely monitored.    However, in according to orthodox Dow theory, the counter-trend bear market advance separating Phase I from Phase II of the longer-term secular bear market still remains intact at this time.    But, I still maintain that once the I’s are all dotted and the T’s are all crossed, in accordance with this setup, the rally separating Phase I of this long-term secular bear market from Phase II will be followed by the resumption of the bear market that began in 2007.

History shows us that bear markets run about a third the duration of the preceding bull market.  With the preceding bull market having run 33 years from the 1974 low, the 17 month decline into the March 2009 low was not THE bottom.    As price moved down into the March 2009 low I began telling my subscribers that the rally out of that low would be a rally of a higher degree and that the longer the rally lasted the more dangerous it would become.   What I meant by that was that the longer the rally lasted, the more convinced people would become that the THE bottom had been seen.   At this point, there seems to be very few who even have a return trip back to the March 2009 levels on their radar screens, much less a continuation of the longer-term bear market.  So, in that regard the bear has done a pretty good job of convincing the public that the bottom is place.

As for the election, I find it pretty disgusting.   It does not matter if one is Democrat or Republican, it is the same old crap and the reality is, nothing will change.   Politicians will do what politicians do best.  That is create more bureaucracy and spend more money.    If there is one thing we can be sure of, it is that absolutely nothing will change as a result of the coming mid-term election.  Oh, there may be a few changes in the parties here and there, but that means nothing.  In the end it will be more of the same.   These people do not understand how we got into the mess that we are in and they certainly don’t know how to fix it and even if a few of them did, you could not get them to agree on it.   Fact is, it is the politicians who have helped to screw things up and to get us where we are.  Yet, the funny thing is, people keep turning to the same Republican and Democratic buffoons to “fix” things.   In reality, I hate to rain on the party, but to expect some miraculous change as a result of the coming election is probably not a reality.   I sincerely hope I’m wrong, but I doubt it.

Now, with that being said, the other big event next week is the Fed announcement on quantitative easing, which gets back to the writing of still more checks.   The plan is to stimulate the economy by means of liquidity and asset purchases all in an effort to stimulate borrowing and consumer demand.    It seems that the great debate now is whether or not this will work.   My belief is that it will not work, at least not in the long-term.    I told my subscribers all through out the post-2002 period and into the 2007 top that all the efforts by the powers that be to “fix” things would serve to only make matters worse and that these efforts would ultimately fail.  That is exactly what happened.    During the post 2002 to 2007 period they were able to stimulate borrowing and to create the housing bubble, which “fixed” things for a while, but in turn only made matters worse.  This time around, there is no housing bubble to create.  The consumer is tapped out while bankruptcies and foreclosures continue to mount.   In light of these facts and the current landscape, I fail to see how QEII can stimulate borrowing or consumer demand and without that borrowing and demand I fail to see how QEII can be successful in the long run.   Perhaps in the short run we may see some positive results out of the hope and false expectations that it will work.  But, in the end because of the state of the consumer and the underlying poor economy, QEII will most likely be a failure and the elections will not ultimately matter.

The current Dow theory chart can be found below.   What does matter is price and how price affects the Dow theory, the cycles, the statistics and the DNA Markers that have been seen at all major tops since 1896.  Everything else is short-term noise.    The Phase II decline and the resumption of the bear market is out there.



I have begun doing free market commentary that is available at

www.cyclesman.info/Articles.htm The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates.  I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops.  Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it.  These details are covered in the monthly research letters as it unfolds.   I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more.   A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week.



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Manipulation and Technical Analysis

Written by Tim Wood
August 8th, 2010 at 11:48 pm

Periodically, the question of manipulation comes up and I’ve recently been asked if the Dow theory or any other technical method is still of value because of all the efforts to manipulate the markets. The short answer is, yes. While manipulation can have a temporary effect on the market, it cannot fix the problem, it cannot stop the inevitable and in the end it will only serve to make matters much worse.

I think we can all agree that every known influence, be it positive or negative, false or real, fundamentally sound or not, big or small, founded or unfounded, manipulative or not, all impacts price. Well, the very basis of technical analysis is that everything is discounted into price. So, if every influence known to man and the market is reflected in price and technical analysis is a study of price, then absolutely the Dow theory and other technical methods are just as valid today as they have ever been and the manipulative efforts to “fix” things does not matter. The only variable that I see in technical analysis, like anything else, is that one person will see the data to mean one thing, while another person may see it to mean something different. Therefore, opinions may vary, but still everything is discounted into price and it all boils down to the technician and his methods.

I know that some believe that the March 2009 low marked the bear market low, that we are now in a recovery and that the worse thing they see is maybe a “double dip” recession. I have stated all along that my research suggests to me that the rally out of the March 2009 low has been a bear market rally and that it should ultimately prove to separate Phase I form Phase II of a much longer-term secular bear market. Point being, we are all looking at the same price data, but different conclusions are being drawn.

As price moved into the July low, it seems that most who were even remotely familiar with Dow theory were proclaiming a so-called Dow theory “sell signal.” As the July 2nd low was made, I told my subscribers that this was not a so-called Dow theory “sell signal.” Rather, I explained that it was an intermediate-term low and that higher prices were expected. Point being, this was again another example of everyone looking at the same price action, but with varying opinions.

So, what may be occurring is that some people will look at specific technical opinions and then when they don’t come to pass, they conclude that technical analysis no longer works and it’s always easy to blame it on manipulation and the PPT. Again, everything is discounted into price and if a given forecast, based on a particular technical discipline does not pan out, then its because the analyst that made the forecast was in error in that he did not read the meaning of the price action correctly. We have all certainly been there before. It’s not that price was wrong and it’s not because of the PPT or manipulation, because regardless of what is driving price, everything is still reflected into price and price is what it is. It’s only the interpretation of price action that varies. With that all being said, any technical picture can also evolve, morph, take more time, or even less time than originally anticipated. As a technical analyst, one must be able to recognize when this is occurring and adjust with the new data. If not, then he will likely find himself out of step with the market.

Personally, it is my belief that manipulation only makes matters worse. As an example of this, all throughout the period between 2003 and 2007 I explained that we were seeing a stretched 4-year cycle. I recognized this based on my statistics, cycles work, and “DNA Markers” and I was able to adjust as the technical picture morphed and stretched. But, I knew that the 4-year cycle had not bottomed and I explained that the efforts by the powers that be to hold things together would ultimately only serve to make matters worse. There is no doubt that the manipulative efforts seen during this period contributed in a very negative way to the credit and banking crisis. In my eyes, this was largely accomplished through the unscrupulous lending practices and the financially irresponsible, resulting in the housing bubble, which Greenspan tried to tell us did not exist. But, in the end, the manipulation did not prevent the inevitable decline into the 4-year cycle low. All the manipulation did was blow the balloon up tighter and tighter as the 4-year cycle stretched and then, when it popped it simply produced a bigger bang, in that the manipulation did in fact make matters worse.

There have been continued efforts to “manage” the market throughout the bear market rally that began at the March 2009 low. Once the bear has sucks enough of the misguided victims back into his grip, the bear market rally will conclude and the assent into the Phase II low will begin. When this occurs, we will again see more manipulative efforts to stop the inevitable. But, once the bear market resumes, and if the “DNA Markers,” that I have identified at all other tops since 1896, are confirmed, then it will not matter. Once the proper setup is in place, all the manipulation in the world will not stop the natural forces in regard to the Phase II decline. I hope people are listening. If not, you have been warned!

The following text on Manipulation was taken from Robert Rhea’s book, The Dow Theory.

“Manipulation is possible in the day to day movement of the averages, and secondary reactions are subject to such an influence to a more limited degree, but, the primary trend can never be manipulated.

Hamilton frequently discussed the subject of stock market manipulation. There are many who will disagree with his belief that manipulation is a negligible factor in primary movements, but it should always be remembered that he had, as a background for his opinions, a most intimate acquaintance with the veterans of Wall Street, and the advantage of having spent his life in accumulating facts pertaining to financial matters.

The following comment, taken at random from his many editorials, affords convincing proof that his views on the subject of manipulation did not vary:

‘A limited number of stocks may be manipulated at one time, and may give an entirely false view of the situation. It is impossible, however, to manipulate the whole list so that the average price of 20 active stocks will show changes sufficiently important to draw market deductions from them.’ (Nov. 29, 1908)

‘Anybody will admit that while manipulation is possible in the day-to-day market movement, and the short swing is subject to such an influence in a more limited degree, the great market movement must be beyond the manipulation of the combined financial interests of the world.’ (Feb.26, 1909)

‘…the market itself is bigger than all the ‘pools’ and ‘insiders’ put together.’ (May 8, 1922)

‘One of the greatest of misconceptions, that which has militated most against the usefulness of the stock market barometer, is the belief that manipulation can falsify stock market movements otherwise authoritative and instructive. The writer claims no more authority than may come from twenty-two years of stark intimacy with Wall Street, preceded by practical acquaintance with the London Stock Exchange, the Paris Bourse and even that wildly speculative market in gold shares, ‘Between the Chains,’ in Johannesburg in 1895. But in all that experience, for what it may be worth, it is impossible to recall a single instance of a major market movement which depended for its impetus, or even for its genesis, upon manipulation. These discussions have been made in vain if they have failed to show that all the primary bull markets and every primary bear market have been vindicated, in the course of their development and before their close, by the facts of general business, however much over-speculations or over-liquidation may have tended to excess, as they always do, in the last stage of the primary swing.’ (The Stock Market Barometer) ‘…no power, not the U. S. Treasury and the Federal Reserve System combined, could usefully manipulate forty active stocks or deflect their record to any but a negligible extent.’ (April 27, 1923)

‘The average amateur trader believes the stock market is guided in its trends by a certain mysterious ‘power,’ this belief being the one factor, next to impatience, most responsible for his losses. He reads tipster sheets avidly; he scans the newspapers industriously for news likely, in his opinion, to change the trend of the market. He does not seem to realize that by the time the news of real importance is printed, its effect, so far as the basic trend of the market is concerned, has long ago been discounted.’

‘It is true that a flurry in the price of wheat or cotton may influence the day to day movement of stock prices. Moreover, sometimes newspaper headlines contain news which is construed as bullish or bearish by market dabblers, who collectively rush in to buy or sell, thus influencing or ‘manipulating’ the market for a short period. The professional speculator is always ready to help the movement along by ‘placing his line’ while the little fellow timidly ‘lays out’ a few shares; then, when the little fellow decides to increase his commitments, the professional begins to unload and the reaction ends, and the primary movement is again resumed. It is doubtful if many of these reactions would ever be caused by newspaper headlines alone unless the market was either overbought or oversold at the time—the ‘technical situation’ so dear to the hearts of financial news reporters.’

‘Those who believe the primary trend can be manipulated could, no doubt, study the subject for a few days and be convinced that such a thing is impossible. For instance, on September 1, 1929, the total market value of all stocks listed on the New York Stock Exchange was reported to have amounted to more than $89,000,000,000. Imagine the money which would have been involved in depressing such a mass of values even 10 per cent!’

I have begun doing free market commentary that is available at www.cyclesman.info/Articles.htm The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops. Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it. These details are covered in the monthly research letters as it unfolds. I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week.



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A Brief Dow Theory Update

Written by Tim Wood
July 25th, 2010 at 9:12 pm

On June 30th both the Industrials and the Transports closed below their June 7th lows. In doing so, anyone who had not already proclaimed a Dow theory “sell signal” seems to have done so at that time. I stated here in my last post, as well as in recent audio interviews, that I disagreed with anyone who has made such statements in regard to Dow theory. I have since received a number of questions asking me how so many people could be wrong about Dow theory and if my position has changed.

My position has not at all changed. My read is that the Dow theory bullish primary trend change that occurred in conjunction with the advance out of the March 2009 low still remains intact in accordance to orthodox Dow theory. Reason being, once a trend change occurs, it must still be considered to be in force until it is authoritatively reversed. According to orthodox Dow theory, the decline into the July low was not an authoritative reversal because in reality price held above the previous secondary low points. I also continue to believe that the advance out of the March 2009 low is one large counter-trend move that will serve to separate Phase I from Phase II of the ongoing secular bear market. It is for this reason that I continue to refer to the advance out of the March 2009 low as a bear market rally. Once the proper DNA Markers are all in place and confirmed, the Phase II decline will assert its deflationary forces far and wide. The current Dow theory chart can be found below. For more details regarding my views that a Dow theory primary trend change, which is erroneously referred to as a Dow theory “sell signal”, has not occurred, please see the July 9th article that was last posted here.



Now, with this all being said, I want to explain another point in regard to erroneous Dow theory calls that so many made in regard to the June 30th violation of the June 7th closing low. Assuming for the moment that the violation of the June 7th low is correct in that it did trigger a bearish primary trend change, which I do not agree is the case, then by default this would in turn mean that these same people are saying that the June highs marked secondary highs points. More details on the reasoning for this is available at Cycles News & Views. Anyway, the June closing highs occurred on June 15th at 4,467.25 on the Transports and on June 18th at 10,450.64 on the Industrials. Therefore, if price were to move back above these levels on a closing basis, then the same people who called the erroneous Dow theory “sell signal” on June 30th would then have to call a Dow theory “buy signal.” By not fully understanding the Dow theory, which is likely a function of having not read and studied Dow theory, one can easily find themselves on the wrong side of the market. Right as everyone was proclaiming the Dow theory “sell signal” in late June, the market bottomed and at Cycles News & Views, I was calling for a low and a rally on July 2nd as the market was bottoming. This was based on both my Dow theory work as well as my cyclical and statistical analysis. The Phase II decline is ahead of us. We are monitoring the averages as we watch for the DNA Markers and confirmation that has been seen at every major top since 1896. Please, do not misunderstand the message here. Longer-term, the entire advance out of the March 2009 low is a bear market rally that should be followed by the Phase II deflationary decline. All I’m saying here is that we have not yet seen a bona fide Dow theory primary trend change at this time. What may or may not be occurring from other technical disciplines, be it cycles, statistics, my DNA Markers, Elliott wave, fundamentally or whatever are separate issues, which are outside of the scope of Dow theory.

I have begun doing free market commentary that is available at www.cyclesman.info/Articles.htm. The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops. Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it. These details are covered in the monthly research letters as it unfolds. I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week.



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