Posted on June 2, 2022
There’s much to say about Dow Theory, but, unfortunately, now is not the time. For those with the inclination, we’ve written about it in varying degrees of depth HERE, HERE, HERE, HERE and HERE. Google it, if you’re not satisfied with our rather brief talking points – again, entire books have been written and whole blogs dedicated to the proposition that market direction can be determined by the relationship between the Dow Industrials and Transports. It’s worth investigating. We’ve seen enough evidence in our nearly thirty years in the markets to know that it’s worth abiding.
In two sentences –
Again, that’s a back of the napkin sketch – don’t judge us on brevity. The question, of course, is whether it’s tradable. And the answer is both yes and no.
No, we’re not trying to be smart-alecs – it’s like this… The primary trend of a Dow move is generally years-long; it’s often referred to as the ‘secular’ trend. Within that primary move, there may be retracements that last months or longer – even much longer. So it’s hard to trade the theory on a short-term basis. For the most part, Dow Theory offers the broadest framework for those wishing to trade the market. It’s not for swing- or day-traders – nor even for we who trade the intermediate trend, though we find it very useful, indeed, in our daily deliberations. It’s rather for those who wish to know if we’re in a primary bull or bear market. That’s it. And that’s information it pays to know. We’re going to map things out for you in more detail below, but first an apology to all those yet-to-subscribe who are now reading. This is big. Too big to just give away to those who haven’t yet paid for it. So, we apologize, good Jews and Noahides. Torah is first, of course. And after that good health. Then comes parnassa. Both yours and ours. HERE’s a link to our membership page if you want to have a look at what follows. If not, again, we apologize for the withholding. And consider well: there’s $3.20 on the table NOW for those who initiate the trade today. And possibly much more. Take a look – There are a few things to take note of –
And that means lower prices over the long term – with retracements, of course – and the following no-lose trade to profit from the bear that’s now upon us.
A Jew and His Gold recommends you consider selling one lot of the Direxion Daily Industrials Bull 3X Shares (NYSE:DUSL) for $31.35 and buying a protective DUSL December 16th 39 CALL for $4.10. Then, set a synthetic short* on the Direxion Daily Transportation Bull 3X Shares (NYSE:TPOR) using the December 16th 32 strike for a debit of $4.20 (5.50/9.70). Purchase a protective TPOR December 16th 39 CALL for $5.20. Total credit on the trade is $17.85.
Rationale: this one really works out wonderfully, as we’ve locked-in a worst-case-scenario profit of $3.20. How so? From our initial credit we took in $17.85. We stand to lose a maximum $7.65 on the short sale of DUSL (39 – 31.35) and a maximum $7.00 from the synthetic short on TPOR (39 – 32). Take $14.65 (7.65 + 7.00) off the initial $17.85, and you pocket $3.20 – in a worst case scenario!
Does it get any better than that, folks? Does the G-d of Israel provide? Please, good Jews and Noahides, pony up and walk home with your $3.20 mimimum! Maximum gain on the affair is $49.85 (17.85 + 32.00).
Many happy returns! Matt McAbby