Tell Tale Signs from the Dow Jones Averages

Sunday’s Profit Radar Report featured the following charts and analysis for the Dow Jones Averages:

Dow Jones Industrial Average (DJI):

The Dow Jones Industrial Average (DJI) appears to offer the most clues at this moment. The weekly bar chart shows double support (trend line and prior September high) right around 17,350 – 17,300. The 20-month SMA is at 17,198. This is not must hold support, but it’s a general zone worth watching for a potential bounce.”

Dow Jones Transportation Average (DJT):

The Dow Jones Transportation Average (DJT) broke above double trend line resistance (green circle) on July 29, but didn’t produce the ‘escape velocity’ needed to continue moving higher. In fact, the DJT has now returned to its original breakout trend line (blue circle). This kind of back test often serves of launch pad for the next spike. We’ve seen a few failures of a similar launch pad lately, but this is still one of the more reliable technical patterns.”

If you enjoy quality, hand-crafted research, >> Sign up for the FREE iSPYETF Newsletter

Summary:

We don’t want to ignore some credible indicators pointing towards a correction, but based on sentiment (in particular the equity put/call ratio), it is hard to believe that stocks will drop hard. A bounce is more likely.”

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013 and 17.59% in 2014.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

 

Advertisements

Weekly ETF SPY: Dow Jones Transportation Average & Dow Theory

Dow Theory has been around for many decades and just triggered a confirmed buy signal. However, Dow Theory has had its struggle in the Fed manipulated market and the buy signal may not be as strong as it appears.

On Thursday the Dow Jones Industrial Average (DJI) and the Dow Jones Transportation Average (DJT) reached an all-time high. According to Dow Theory, that’s a bullish confirmation.

Dow Theory has been around so long that it’s considered antiquated and outdated by many. Its roots go back as far as 1889 and start with a man named Charles Dow.

Dow started his career as an investigative reporter focused on business and finance. In 1885 Dow became a member of the New York Stock Exchange. In 1889 Dow began publishing a newspaper called the Wall Street Journal.

From 1899 to 1902 Dow published a series of editorials in his Wall Street Journal. Many asked him to compose a book made up of his editorials, but he didn’t. It was left up to others to continue Dow’s Theory and legacy.

Dow Theory students such as William Hamilton, Robert Rhea, George Schaefer, and Richard Russell kept the Dow Theory alive after Dow’s death. They were able to call the Great Depression market bottom in 1932, the turn to the downside in 1937, the 1949 market bottom and the 1966 top.

There are six basic tenets to the Dow Theory. One of which is that the averages must confirm each other. A bull market in the Dow Jones Industrial Average (NYSEArca: DIA) for example, could not occur unless the Dow Jones Transportation Average (NYSEArca: IYT) rallies as well.

Why? Only produced goods that are shipped to and paid for by the consumer confirm a strong economy (production without delivery would only inflate inventory).

Dow Theory was born in a free market and proved its worth many times in decades past. However, the Dow Theory track record in a Fed manipulated market is less than stellar.

For most of 2012 the Dow Jones was ‘doomed’ by a bearish non-confirmation as the Transports failed to confirm the Dow’s new high (dashed red box).

It wasn’t until March 2013 when both averages (industrials and transport) rallied to all-time highs, confirming the rally.

There have been some ups and downs since March, but the DJI and DJT both recorded all-time highs yesterday (July 18, 2013). This means that goods are manufactured and shipped.

Well, that’s what it used to mean anyway. Today it merely means that there’s enough liquidity to buoy different industry sectors.

This is a bullish development, although I’m not buying into the rationale that the stock market is up because the economy is healthy and that the economy is healthy because the transportation sector is confirming the industrial sector.

As the chart above shows, both averages are currently above their respective longer-term parallel channel. A move below the channel wouldn’t suffocate the bullish undertones, but as long as prices remain above, both indexes are ‘safe.’

>> Sign up for the FREE ETF NEWSLETTER and get the ETF SPY delivered to you.