Secondary Reactions

A secondary reaction is a meaningful countertrend move against the primary trend. A secondary reaction is a significant pullback against an existing primary bull trend. Bear-market rallies can qualify as secondary reactions if they satisfy Dow Theory requirements. A qualifying secondary reaction must move more than 3%. A qualifying secondary reaction must last at least three weeks. The S&P 500 must rally at least 3% for the secondary reaction extent requirement to be considered valid. A secondary reaction requires an average rally duration of at least 8 trading days across the three indexes. A secondary reaction must also move at least 3% to qualify. Classical Dow Theory requires a secondary reaction to last at least three confirmed weeks. A secondary reaction also requires at least two of the three indexes to rally for at least two calendar weeks. A rally that fails the three-week or 3% requirement is irrelevant for Dow Theory purposes. In the alternative sell signal, the lows of the last completed secondary reaction become the key reference level. The last completed secondary reaction is the reaction that occurred before the latest highs. A completed secondary reaction is the mo…