Sunday, January 6, 2013

Dow Theory and the Transports

At the close Friday January 4, 2013 the Dow Transportation Average posted a new 52-week high and part of Dow Theory states the Industrial and the Transportation averages must eventually confirm any moves above or below significant junctures. Last Friday the Dow Industrial Average closed at 13435 just below the 52-week high of 13662 and so has not yet confirmed last week’s new high of the Transports

Problem; is the post fiscal cliff advance the beginning of a big advance or is it a bull trap? A bull trap is a condition that occurs when prices break above a significant level and generate a buy signal, but suddenly reverse course and negate the buy signal, thus "trapping" the bulls that acted on the buy signal.

We will know over the next few weeks if both the Industrials and the Transports can rally and stay above 52-week high levels or if the Transports reverse here and setup the bull trap. It is possible that last week’s 52-week high of the Transports a false move. A look at the table below displays the top ten of the twenty components by weight with the bold symbols identifying the four names that also closed last week at a 52-week high.

When you look at the bottom ten we find that only one component closed last week at a new 52-week high.  In summary out of twenty components, only five posted a new 52-week high suggesting thin leadership.   

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