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SPDR Dow Jones Industrial Average ETF Message Board

  • keybotthequant keybotthequant Jan 19, 2013 10:08 AM Flag

    Dow Industrials and Transportation Charts Explain New Highs and Dow Theory

    Century-old Dow Theory says the Industrials and Trannies must confirm the higher highs together for a bullish market, or lower lows together, for a bearish market. If one index is moving higher, but the other diverges lower, there is typically trouble ahead. After a bottom, the higher highs in each index confirm a steady move higher. There are several different view points on the finer details of Dow Theory but Keystone prefers the simple approach for this tool.

    With the wild upside move in the TRAN over the last couple months, breaking out to new highs, and also all-time highs, all eyes are on the Dow Industrials for confirmation that will point to a long-lasting bull party. However, the Dow Industrials are not yet above the intraday October 2012 highs let alone the all-time highs printed at the market top in October 2007. On 10/5/12, the Dow printed a closing price of 13610.15 and an intraday high at 13661.87, which are the highs for 2012. Yesterday, 1/18/13, the Dow prints a closing high at 13649.70 and intraday high at 13649.93. Thus, wave the banners for a new five-year 'closing' high but not for a new overall five-year high, at least not yet. The Dow needs to print above 13661.87, about a dozen points higher, to officially take out the October 2012 high and claim the five-year multi-year high title.

    This discussion is important in the context of Dow Theory. Note in 2011 the Trannies made another higher high. The Trannies had led the Industrials the whole way off the March 2009 QE1 bottom. The Industrials, however, did not confirm, and the markets rolled over into the August 2011 waterfall crash. This was highlighted at the time. Type 'Dow Theory' in the search box above to bring up the August 2011 Dow Theory charts for further study. In Autumn 2011, Chairman Bernanke cranked up the Opeation Twist pumping and the ECB kicked off global monetary intervention with the LTRO 1 program promising LTRO 2 in quick order as well. Thus, the markets jump higher on the free money.

    In early 2012, the Industrials were pushing higher but the Trannies would not confirm so the markets hit another weak patch. During 2012, with further Fed and ECB quantitative easing intervention, goosed markets higher once again with the Industrials printing new highs. The Trannies would not confirm and the downward channel in the Trannies last year foretold of negative things in our futures. However, the power of the artificial money pumping would not end. The ECB intervenes with the OMT Bond-Buying plan and the Fed announces QE3 Infinity so the good times are rolling again. The Trannies jump into action from the mid-November bottom, receiving a pump, since all the money sloshing around has to go somewhere, why not in the sector that should jump if a recovery is continuing. Then the Fed's throw QE4 Infinity and Beyond in the mix, why the money is simply falling from helicopters these days. So here we are, looking for a confirmation with the Dow Industrials.

    The Industrials need to print higher highs to confirm a sustainable move higher and this will start with price taking out the October 2012 high at 13661.87 (12 points higher). Once that is accomplished, the bulls receive a small feather in their caps, but then they must take out the October 2007 high at 14198.10 (550 points higher). That would achieve the confirmation and signal nothing but blue skies above for markets.

    For the Dow and Tranny charts and further technical analysis, use search box above for Keystone Speculator

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