Is Dow Theory about to send a “Sell Signal?”

August 4, 2014 7:26 AM

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Is Dow Theory about to send a “Sell Signal?”

Dow Theory says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high and it is accompanied or followed by a similar advance in the other. The theory also says that when both averages dip below previous important lows, it’s regarded as an indicator of a downward trend.

The 3-pack below looks at patterns in the Dow Jones Industrials, Dow Jones Utilities & Dow Jones Transportation indices. Each chart below demonstrates the trend is up.

Each DJ index above remains in an uptrend, dating back a few years. Nothing to debate about the trends. These rallies have pushed each index up to unique long-term resistance tests that could be worth watching very closely! 

Industrials (left chart) is up against mega-phone resistance, dating back to the 2000 highs at (1). Utilities ETF XLU (middle chart) could be creating a Double Top at (2). Transports are up against a steep resistance line and long-term Fibonacci Extension level at (3). 

As mentioned earlier, the trend in each of these remains up, above their 200MA lines!

In Theory, what these DJ Indices do over the next 4-6 weeks could become very important from a “Dow Theory” perspective, should these unique resistance lines end up impacting the quality upward trends that are in place.

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