"Cyclesman" go-to guy talks about "D" - Dow Theory, and cycles including housing: Part V of cycles review - Tim Wood's Cycles News & Views

No discussion of cycles can be complete with referencing the work of "Cyclesman," Tim Wood of Cycles News & Views (included in "other sites of interest" at the right side of the page here). So this is a good time to add his work to this weekend review of different cycles methods and analysts. Tim really plows through cycle analytics, addressing long-term and short-term cycles in his detailed reports. He also folds in his expertise in Dow Theory, the long waves (Kondratieff Waves), and objective technical indicators. At a time like now, when there are some different cycles forecasters predicting everything from bear-market lows to show up anytime soon, to this being the beginning of a new bull market, it's frankly refreshing to be able to refer to a cycles analyst who engages in such rigorous cross-analysis and objective technical review. (Am I being too glowing? Can you tell I'm a subscriber, and recommend that (along with ChartsEdge of course) to anyone really interested in cycles? And no, there's no affiliation or sponsorship - this is genuine on my part.) Tim's short-term cycles include trading cycles measured in days to a few weeks. He's got a perspective on the 4-year cycle also, based upon his study of confirming indicators.

I do not include any updates, charts or discussions at this blogspot quoting Tim's subscription services work, since it's copyrighted of course and I respect his subscription arrangement. I can tell you that quite often, my views on interpretation of the charts are influenced by his views, but I wouldn't say that I'm in lock-step in every way. Also, his work doesn't necessarily attempt as much as I do, to look for specific levels, projections or turning points. For example, he doesn't use Fibonacci projections, Elliott Wave, or (normally) trendline analysis. He also doesn't use other elements that others fold in (such as Gann angles, solar/lunar, geomagnetic, astrological, etc.). He does use technical indicators to confirm cycles movement, but does not use sentiment indicators.

I do think I can share one comment about gold that he made in his weekend update, as it's something even I can see and commented on this weekend: "There is a lot riding on this advance." That's for sure!

We are lucky once again this weekend to have a public glimpse into what Tim Wood is thinking nowadays, as he's written another article,
A Brief History and Dow Theory Update posted at FinancialSense.com (5/15/09). I'm personally glad about some of his comments in this one, because they answer questions that arose this past week, when I was drawn into being one of the people referring him those questions! Let's see what he's saying in these open comments, this weekend:

The method used and written about well over 100 years ago by Charles H. Dow were first termed “Dow’s Theory” after Dow’s death in 1902, by S.A. Nelson who was a reporter for The Wall Street Journal under Dow’s stewardship. .... [B]esides myself, I only know one other person who has read and studied the original writings on this subject and that is Richard Russell. It is my opinion that if one has not studied these original writings that it is impossible to understand orthodox Dow Theory and that is why so many misquotes occur.

Now, with this being said, a misconception in which I have recently received several e-mails on is that the Dow Jones Utility Average is part of Dow theory. This is NOT true. When reading these original writings the authors constantly referred to “both averages.” The two averages they were referring to were the Industrials and what was known as the “Rails” at that time and which later became known as the Transports. Also, the Dow Jones Utility Average did not even come to be until 1929, which was some 27 years after Dow’s death. So it is clear, based on these original writings as well as the facts surrounding the origin of the Utilities, that they without a doubt were not and are not a part of orthodox Dow theory. .... At the core, the basis of Dow Theory has to do strictly with the price movement of the Industrials and the Transports above and below previous secondary high and low points. Yes, values, as Richard Russell often speaks of is a factor, but even then it all comes down to the price movement of both averages.

... [T]the bearish primary trend that was established on November 21, 2007 when both averages closed below their previous secondary low points, still remains intact and to date, nothing has occurred to nullify or reverse that primary trend change. So anyone suggesting that the Utilities or the S&P or anything else has recently triggered a “Dow Theory sell signal,” as I have recently been asked about, is incorrect. Fact is, the Bearish Primary Trend still remains intact in accordance with orthodox Dow Theory. A current chart of the Industrials and the Transports can be found below.

Next, I want to talk briefly about housing, which has absolutely nothing to do with Dow theory. I have included a chart of the Housing Index below. In most markets there is an annual cycle that averages about one year. I used this price behavior of this cycle along with my intermediate-term Cycle Turn Indicator to call the top of the housing market back in 2005 and this was first published here in the October 28, 2005 WrapUp along with several follow ups as the top progressed. Of late I was asked, if the housing market was bottoming then would this not lead the stock market higher? With that in mind, I want to take a look at the Housing Index once again. Note that the last annual cycle, which I have marked with an “S” on the chart below last bottomed in March. From that low the Housing Index rallied with the overall market, but has more recently begun to decline with the overall market.

The question now is, has the annual cycle advance run its course, or is this simply a correction that will be followed by higher prices? At this point the jury is still out on this because there is not enough technical/cyclical data for me to clearly pass this judgement. But I can tell you this. Based on what I see at this point, the Housing Index is at an important juncture and is at great risk of the annual cycle having topped. If this decline isn’t soon halted, then the evidence will soon begin to suggest that the annual cycle has indeed peaked. If that proves to be the case, and I think there is a good chance that it has, then we will have a cyclically structured annual cycle that will set the stage for not only more weakness, but for more weakness for the remainder of this annual cycle. At this point, I simply must watch my intermediate-term Cycle Turn Indicator for guidance because this is the point where the rubber should meet the road and we should get confirmation one way or the other real soon. Anyway, should this prove to be another top in the Housing Index, I do not see this weighing well for the economy. This would also be consistent with the fact that we still have a bearish primary trend in place in accordance with Dow theory, which is still suggestive of continued “stormy economic conditions.”

Based on the evidence at hand today, the bottom line is that the rally that began at the March low is a counter-trend affair. Nothing has occurred either cyclically or from a Dow theory perspective to change this opinion. The talk of “green spouts” is simply talk of false hopes for an early spring. The winter season in the market is not over and we all know what happens to “green spouts” when the reality of winter sets back in.

Tim's cycle discussion of housing also gives you a sense of how he analyzes cycles in other markets like equities (stock markets), gold, the U.S. dollar, bonds, etc. By the way, he makes an interesting point by looking at housing, since it isn't just the banking and financial sector that's at the center of current economic pain. The broad economy won't really pick up, as far as I can tell, until housing bottoms out so that households can work their way through to help support a real economic upturn.