Out of the lows in 2009 there has only been one of the indicators that I follow that hasn’t had whipsaws or bad signals somewhere along the way. That “indicator” is Dow Theory. It has continued to confirm  a long term bull market for the entire period from its bullish trend change in July 2009. This is due to time being an important factor in Dow Theory. The system outlined by Charles Dow and William Peter Hamilton waited for roughly three weeks of trend before declaring a secondary reaction point. The lack of secondary lows that subsequently failed has kept Dow Theory bullish.

On the chart below I’ve annotated the secondary low and high points from the last several years. In addition there is a Dow Theory line during the first several months in 2012. We’re now approaching a month long decline in the Transportation average (DJTA). The industrial average (DJIA) will need to break below the December lows to pass the three week mark. At this point we’ll need to watch carefully for signs of a secondary low. Then the next condition that needs to be met for a secondary low is a decline that retraces roughly 33% from the prior secondary low (November 2012 for the industrials and June 2012 for the transports). Those levels are about 16190 for DJIA and 7770 for DJTA. Basically a retest of the October lows that has a rally lasting three weeks will create a new secondary low.

According to Dow Theory that type of low should be bought. The market is still in a bull trend until proven otherwise. The most likely scenario to change the primary trend to bearish would be the retest and rally mentioned above that then in turn fails and breaks back below what would be new secondary lows.

Another indicator that hasn’t whip sawed over the past few years is the Trade Followers Breadth indicators calculated between bullish and bearish stocks on Twitter and StockTwits. It almost went negative in early September 2013, but since that time it has remained strongly positive. Currently it is showing some weakness with lower readings than October of last year when the S&P 500 Index was almost 9% below current levels. This is an important indicator to watch over the coming weeks. A dip below zero will turn the odds to a long term bear market…or at least a meaningful correction. One other thing to note is the types of stocks showing up in the most bearish list (used to created breadth). I’m seeing many stocks that should be leading showing the most weakness.