Sunday, July 10, 2016
INDU Dow Industrials and TRAN Dow Transports Daily Charts Dow Theory TRAN Death Cross
From a Dow Theory perspective, new highs in the Dow Transports must be confirmed by new highs in the Dow Industrials, or visa versa, to prove that up is the direction for stocks while each must confirm each other in the down direction to confirm a bear path ahead for stocks.There are many rules that different technicians follow concerning Dow Theory but let's keep the analysis simple.
The green dots in September and October last year were printing higher highs until November when both the trannies and industrials could not print a higher high. Stocks then slid lower and the bear path was confirmed by lower lows and lower highs in both the trannies and industrials. The bottom occurs in February and both indexers begin printing higher highs until April when the trannies balk. TRAN prints a higher high in April but you can call it flat. Note the INDU catapulting higher in April.
Both print a low in May and then a lower high in June so the direction is down. The bears looked in good shape, then great shape when the Brexit vote was a surprise and Britain decides to leave the EU. The bear joy was short-lived since the BOE stepped in to save the day as the central bankers always do and stocks recover strongly. Other global central bankers plan to or have begun more stimulus programs and are colluding to goose stock markets higher around the world.
The Dow now makes a higher high as the green dot on the right-hand side shows, however, trannies have not confirmed to the upside as yet. The market bulls will need TRAN above the 7950-ish level to receive verification that a strong upside equity rally has legs.
While the Dow Theory drama plays out, a death cross occurs for the Transports forecasting a downward path ahead. If TRAN cannot move above 7950-ish, the broad stock market and transports should roll over to the downside. If TRAN moves above 7950-ish, there are big-time stock market record highs on the way. 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.
Note Added on Monday Morning, 7/11/16, at 10:39 AM EST. The SPX prints a new all-time record high at 2139.34 and the day is young. TRAN is only up a smidge +0.1% to 7691.