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(This article was first published on <strong><a href="http://www.quintuitive.com/2018/03/24/the-bull-barely-survived-on-friday/"> R – Quintuitive</a></strong>, and kindly contributed to <a rel="nofollow" href="https://www.r-bloggers.com/">R-bloggers)</a> </div>
<p>There are only a few well-known signals which I consider reliable. One of them is the <a rel="nofollow" href="https://en.wikipedia.org/wiki/Dow_theory" target="_blank">Dow Theory</a>. According to it, or at least to some interpretations of it, the bull market cycle almost ended this Friday.</p>
<p><span></span></p>
<p>This time I am adding something new. I recorded myself while doing some of the analysis:</p>
<p><iframe allowfullscreen="true" src="https://www.youtube.com/embed/gF5A596yAqk?version=3&rel=1&%23038;fs=1&%23038;autohide=2&%23038;showsearch=0&%23038;showinfo=1&%23038;iv_load_policy=1&%23038;wmode=transparent" width="450" type="text/html"></iframe></p>
<p>Different people interpret the Dow Theory differently. My personal favorite is <a rel="nofollow" href="https://thedowtheory.com/" target="_blank">Jack Schannep’s interpretation</a>. I was introduced to it by his excellent <a rel="nofollow" href="https://www.amazon.com/Dow-Theory-21st-Century-Indicators/dp/0470240598" target="_blank">Dow Theory for the 21st Century</a> book. What really hit home with me, is that his approach is fully-quantified. The book also covers 60 years of history and provides detailed data on entry, exit, gains, etc. All in all, one of the best I have seen. I have been monitoring some of Schannep’s indicators in real life for quite a while now. The signals are rare, but for example take a look at my old blog posts <a rel="nofollow" href="https://theaverageinvestor.wordpress.com/2011/09/01/the-monthly-update/" target="_blank">around the European crisis of 2011</a>.</p>
<p>So what happened on Friday? Well, the indexes closed at levels very close to signal the end of the bull market. First, let’s take a look at the S&amp;P 500. The R code first:</p>
<pre>
require(quantmod)
require(plotly)

pretty.plot = function(t, name, short.name, level) {
  df = data.frame(Date=index((t)), Close=as.numeric(t), row.names = NULL)
  hovertext = paste0(&quot;Date:  <b>&quot;, df$Date, &quot;</b><br>&quot;, short.name, &quot;:  <b>&quot;, trunc(df$Close), &quot;</b><br>&quot;)
  p = plot_ly(data=df, x = ~Date, y = ~Close, mode=&quot;line&quot;)
  p = layout(p, title = name)
  p = add_lines(p, y = ~Close, line = list(color = &quot;#00526d&quot;, width = 4), hoverinfo = &quot;text&quot;, text = hovertext)
  p = add_trace(p, x = df[,'Date'], y = rep(level, NROW(df)), showlegend = FALSE, mode='line', hoverinfo = &quot;none&quot;, line=list(width=0.5))
  p
}

gspc = getSymbols(&quot;^GSPC&quot;, from=&quot;1900-01-01&quot;, auto.assign=F)
pretty.plot(Ad(gspc)[&quot;2017-09/&quot;], &quot;S&amp;P 500&quot;, &quot;S&amp;P 500&quot;, min(Ad(gspc)[&quot;2018&quot;])) 
</pre>
<p>The code uses plotly for charting. I got inspired <a rel="nofollow" href="https://moderndata.plot.ly/time-series-charts-by-the-economist-in-r-using-plotly/" target="_blank">by this link</a>.</p>
<p>This results in:</p>
<div align="center">
<a rel="nofollow" href="https://i0.wp.com/www.quintuitive.com/wp-content/uploads/2018/03/spx-1.png" target="_blank"><img sizes="(max-width: 720px) 100vw, 720px" src="https://i0.wp.com/www.quintuitive.com/wp-content/uploads/2018/03/spx-1-720x405.png?w=450" alt="" class="wp-image-3335" data-recalc-dims="1"></a>
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<p> <br>
The critical level to watch is <b>$2,581</b>. The Friday close was <b>$2,588</b>. Still holding.</p>
<p>Next comes the Dow Jones Industrial Average (DJI):</p>
<div align="center">
<a rel="nofollow" href="https://i1.wp.com/www.quintuitive.com/wp-content/uploads/2018/03/dji-2.png" target="_blank"><img sizes="(max-width: 720px) 100vw, 720px" src="https://i0.wp.com/www.quintuitive.com/wp-content/uploads/2018/03/dji-2-720x405.png?w=450" alt="" class="wp-image-3340" data-recalc-dims="1"></a>
</div>
<p> <br>
The important level here was <b>$23,860</b>. It was breached on Friday, the close was <b>$23,533</b>.</p>
<p>So it comes down to the Dow Jones Transportation Average (DJT):</p>
<div align="center">
<a rel="nofollow" href="https://i1.wp.com/www.quintuitive.com/wp-content/uploads/2018/03/djt-2.png" target="_blank"><img sizes="(max-width: 720px) 100vw, 720px" src="https://i2.wp.com/www.quintuitive.com/wp-content/uploads/2018/03/djt-2-720x405.png?w=450" alt="" class="wp-image-3341" data-recalc-dims="1"></a>
</div>
<p> <br>
The important level here was <b>$10,136</b>. Friday’s close was higher – <b>$10,163</b>. Still holding.</p>
<p>What does all this mean? If you are interested in history around similar events – check out the book. What it means to me is that the party can be over anytime now. Even a small down day will squeeze out a confirmation from the S&amp;P 500 or from the DJT, which combined with the signal from the DJI will put us in what I call the no man’s land. No bull, no bear – we will be waiting for further confirmation.</p>
<p>To make things bleaker, the Fed is tightening.</p>
<p>On the bright side, we haven’t reached a bear market definition yet. Here again I am a Schannep’s follower – a bear market is at least a 16% correction. On the DJI, the market currently measures an 11% correction. 16% is around $22,358 more than a 1,000 points lower. The skeptics will also point out that we haven’t crossed the 200-day moving average yet.</p>
<p>The post <a rel="nofollow" href="http://www.quintuitive.com/2018/03/24/the-bull-barely-survived-on-friday/" target="_blank">The Bull Survived on Friday, but Barely</a> appeared first on <a rel="nofollow" href="http://www.quintuitive.com/" target="_blank">Quintuitive</a>.</p>
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