Monday, October 15, 2007

Dow Theory 2007

Looking for cracks in the stock market's foundation is
a full time job. No surprise that market bears dust
off the Dow Theory to support their prevailing fear
that this Goldilocks market is not without some cold
porridge. A pillar of Dow Theory, however dated its
precepts, is that the Dow Transports should support
the Dow Industrials. What's good for the industrial
workhorses of America should be good for their
carriers. Globalization helps and hinders the theory,
but, in a theoretical sense this correlation has great
merit.

The current divergence of the two groups makes for
unsettling evidence of a precarious market moment as
we hurtle toward the October gauntlet. Stock Trends
followers would have noted the early divergence back
on August 3 when the Dow Transportation Index turned
Weak Bullish. The Transports turned Stock Trends
Bearish at the end of September, making the current
Stock Trends Bullish indicator of the Dow Industrial
Index a blaring contradiction with the Dow Transports'
Bearish indicator.

However, the same divergence occurred in the late
summer of 2006. The Dow Industrials pulled through
that period, later to scale 12,000 in fine fashion.
The Dow Transport Index has a ways to go to reverse
the Bearish trend and recover to its previous high.
The coming months will be telling.

Stock Trends Report - Dow Jones Transport Index:
http://www.stocktrends.ca/?page=streport&symbol=DJT-I

Stock Trends Report - Dow Jones Industrial Index:
http://www.stocktrends.ca/?page=streport&symbol=DJI-I

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