Here are a couple of things that haven’t happened since late 2012. First is a downtrend in the Dow Jones Industrial Average (DJIA) that is more than a month long. Since the last secondary low for DJIA the down trends have lasted roughly a month. If DJIA closes at the current level today it will be in a down trend that is now six weeks old. The transports (DJTA) are now in a down trend that is six months long. One of the tenets of Dow Theory is that bull markets will have long up trends and short down trends. In context of the two and a half year rally out of the 2012 lows neither of these declines are significant, but they do point to a changing character in the market.

As a reminder, Dow Theory is still in a long term bullish trend. The current declines haven’t changed that trend. I’ll keep you updated to any significant or interesting things that happen with Dow Theory.

Another thing that points to a change in character of the market is a point and figure chart for the S&P 500 Index (SPX). It is now in its first down trend since late 2012. This coincidentally lines up with the last secondary low for DJIA.

A few notes about our portfolio allocations. They are still 100% long, but my measures of trend and core risk are both close to warning. I suspect that a break below about 2040 on SPX that sticks into Friday would provide enough pressure to cause us to raise some cash and/or add some shorts in the core portfolios. The volatility hedged portfolio is guided by my market risk indicator which currently has two of four components warning. The other two components are getting closer to warning, but still have some wiggle room. If I had to guess (and this is only a guess) I suspect it would take a fall below about the 2000 level on SPX to generate a market risk warning. If that occurs I’ll be adding an aggressive hedge.