Sunday, March 20, 2016
Dow Theory TRAN Dow Jones Transports and INDU Dow Jones Industrials Daily Charts
Dow Theory always provides interesting clues for markets. Dow Tehrory has been around for decades and has its roots when the railroad industry ruled the land. Of course increased activity in the trannies led to increased economic activity and the perception of higher profits and stocks rise. The Dow Transports and Industrials will confirm each other for market direction. If trannies move higher it will be confirmed by the industrials and visa versa and this confirmation confirms the overall direction for stocks.
Last year the red dots show both the trannies and industrials printing lower lows. The bears were celebrating as markets sold off and then cheers were heard from all the furry friends as the August collapse took place. The bounce in September results in a lower high for both charts so Dow Theory continues to point lower but in late September both charts print a higher low. This was the first inkling that stocks were turning around to the upside as per Dow Theory. The trannies print higher highs and higher lows in October-November and the industrials confirmed the upside but in late November the Dow Industrials balk. Price did not make a higher high to confirm the Transports. This hints at trouble afoot and sure enough, the trannies began failing in earnest and dragged the industrials down the rabbit hole as well.
Dow Theory was calling for lower lows in stocks in January and into February. In late February, however, the trannies print a higher low which hints at a recovery on tap. The industrials came down for a matching low. The trannies then proceed into a higher highs and higher lows pattern which pulled the Dow Industrials higher and once the two indexes are confirming each other with higher highs the wine is flowing like water for the celebratory bulls. This bullish confirmation behavior of higher highs and higher lows continues for both the Dow Transports and Dow Industrials so from a Dow Theory perspective, the bulls are in the driver's seat. Prices would need to drop under the prior lows from about a week or two ago to encourage the bears. 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.