QID - QLD TRENDS (fka )

[JLS]

Dow Theory is used only for identifying primary trend reversals -- Bear and Bull markets -- and not for secondary trends, such as corrections. What we had last summer was a correction in the S&P and Dow. Keep in mind that during C.H. Dow's days there were only the Industrials and Transportation indexes. There was not a Utilities index, and there wasn’t an S&P and Nasdaq, either.

The problem with the definitions of primary and secondary trends is that the Nasdaq is a large market in itself and it has a high beta compared to the S&P. Because of the high beta of the Naz, last summer's correction in the other markets was a virtual Bear for the Naz.

I would like to introduce a new thought for rumination. What appears to be forming (or perhaps already two-thirds formed) after the quick advance seen in the market after last August's low is a modified (or sloppy) head-and-shoulders pattern. Modified or sloppy because of year-end trading effects, in particular the typical low volume during the long holiday season. Could this portend a correction this summer in the Dow and S&P, and a summer Bear for the Naz? I think so, but not because of this pattern.