Thursday, July 23, 2015
INDU Dow Industrials and TRAN Transportation Index Weekly Charts Dow Theory Signals Downside Confirmation
The Dow Theorists have been flagging the non-confirmation and roll over of the trannies as compared to the industrials in recent weeks. In its most simplistic form, Dow Theory requires new highs in the Dow Industrials to be confirmed by new highs in the Dow Transports, or visa versa to verify that the stock market remains in an uptrend. Conversely, lower lows in the Dow confirmed by lower lows in the trannies point to a sick stock market ahead. The concept stresses the importance of transportation stocks including rails and truckers vital to the economy and shippers such as UPS and FDX. Dow Theory has been around for multiple decades and is one of the oldest market indicators used by technicians. However, there are a dozen different methodologies behind identifying the confirmation and non-confirmation signals each having a minor twist to the overall concept. Keystone has a simple mind so to keep things simple, the important highs and lows are identified in the charts above.
On the Dow chart, stocks continue to print new highs through 2013, 2014 and into this year. Each day, traders drink Fed wine, snort BOJ crack cocaine and inject ECB heroin buying stocks with easy money without any fear or worry. The trannies participate in the upside orgy party confirming the Dirty Thirty at every higher high.......until the last days of last year. The red dot shows TRAN non-confirming with a lower high in December. The Dow continues printing new highs into the May top but trannies continues leaking lower developing lower lows and lower highs.
The non-confirmation transition zone gives way to a confirmation to the downside with the Dow printing a lower low from May into July and the Transports also printing a lower low in the same time frame. The two key indexes are confirming the downside move and now in a pattern of lower lows and lower highs which is bearish for the broad market going forward. Market bulls need both indexes to break out above the upper trend lines of the downward-sloping red channels to reverse the negativity and return to a confirmation to the upside. For now, the bears are in control of the stock market for the weeks and months ahead. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.