The Average Investor's Blog

A software developer view on the markets

Schannep’s out of the market too

Posted by The Average Investor on Oct 6, 2011

According to a recent update on MarketWatch, Jack Schannep is, as of the Monday close, again out of the market according to his interpretation of the Dow Theory.

Why on Monday and not earlier – one might expect that according to his interpretation, we would had a Dow Theory sell signal on September 22:

Status Date S&P 500 % Date DJI %
High 2011-08-31 $1,218.89 2011-08-31 $11,613.53
Bounce 2011-09-09 $1,154.23 -5.30% 2011-09-09 $10,992.13 -5.35%
Pull Back 2011-09-16 $1,216.01 5.35% 2011-09-16 $11,509.09 4.70%
Sell 2011-09-22 $1,129.56 2011-09-22 $10,733.83

Why the sell on the close of October the 3th? The explanation in my opinion is that the secondary reactions should last at least three weeks (according to a statement made by Robert Rhea, one of the early Dow Theorists). In other words, we need at least 15 trading days between the recent high and the bounce. This changes the table to:

Status Date S&P 500 % Date DJI %
High 2011-08-31 $1,218.89 2011-08-31 $11,613.53
Bounce 2011-09-22 $1,129.56 -7.33% 2011-09-22 $10,733.83 -7.57%
Pull Back 2011-09-27 $1,175.38 4.06% 2011-09-27 $11,190.61 4.26%
Sell 2011-10-03 $1,099.23 2011-10-03 $10,655.30

In any case, all long term indicators which have worked fairly well historically suggest staying out of the market at this point.

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