Tuesday, November 5, 2013

The Dow Transports at all time highs

Charles Dow. (1851-1902) created both the Dow Jones Industrial Average and the Rail Average (now known as the Dow Transportation Average). It was his work on primary and secondary trends that proved to be the foundation of modern technical analysis.

Dow’s concepts are known to-day as Dow Theory. One concept states that the averages must confirm each other.  Dow argued that no important bull or bear market could occur unless the industrial and the rail (transport) averages gave the same signal or, confirmed the new change in market trend.  In other words both averages had to move above a previous secondary peak to generate a bull market signal. This price “confirmation” by both averages should occur approximately at the same time within a 6 month time window.

On November 4, 2013 the Dow Transports closed at an all-time high above 7100 and well above old resistance at the 6600 & 6700 level. The advance was impressive with 19 of the 20 components up on the day. Conversely the Dow Industrials have spent the last four months trading below resistance at 15700 and have not yet confirmed the “blue sky” position of the Dow Transports.

The bulls will need the Dow Industrials to print new highs over the next several weeks and the bears will need the Dow Industrials to stall here AND have the Transports reverse and drop below the 6600 level. No need to panic because these signals tend to take time to set up

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