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Dow Industrials Enter Primary Bear Market

09/23/11 09:31:34 AM
by Alan R. Northam

Long-term statistical analysis shows the Dow Jones Industrial Average entering a primary bear market.

Security:   .DJI
Position:   N/A

The lower panel of Figure 1 shows the daily price bars of the Dow Jones Industrial Average (.DJI). This figure also shows the 200-day linear regression trendline (blue line) along with the upper one sigma channel line (red dotted line), the upper two sigma channel line (solid red line), the lower one sigma channel (green dotted line), the lower two sigma channel line (solid green line), and the lower three sigma channel line (dashed green line). The red channel lines represent resistance lines and the green channel lines represent support.

FIGURE 1: .DJI, DAILY. This chart shows the daily price chart of the DJIA (.DJI), in the lower panel along with its 200-day linear regression trendline and its associate channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator in the next lower panel.
Graphic provided by: MetaStock.
On August 2, the Dow broke down below the lower two sigma channel line to warn of a possible reversal in trend from a long-term primary bull market to a primary bear market. Then on August 8, the transports broke down below the lower three sigma channel line to signal a reversal in trend.

Looking at the linear regression slope indicator in the top panel of Figure 1, note that this indicator broke down below its zero line on September 15 to officially mark the beginning of a new primary bear market for the Dow Jones Industrial Average (DJIA). Note also that the R-squared indicator is still below its critical level at this time. Until the R-squared indicator moves above its critical level, the new primary bear market trend is still vulnerable to a reversal back to the upside.

The next lower panel shows the R-squared indicator that measures the confidence of the trend as well as its strength. The last trading bar on the chart shows this indicator having moved above its critical level, indicating a 95% confidence level the new primary bear market trend will continue. Note that as long as this indicator continues to move in an upward direction, the new-found bear market trend will continue to strengthen and move downward.

In conclusion, long-term statistical analysis shows that the primary bull market trend of the DJIA has come to an end and a new primary bear market trend has begun. As long as the 200-day linear regression slope indicator continues to move down below its zero line and the 200-day R-squared indicator continues to move up, the bear market trend will continue to move price lower.

Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at or by visiting his website at You can also follow him on Twitter @TradersClassrm.

Garland, Tx
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