Dow Theory Nonconfirmation In Transports And Industrials

There’s interesting chatter in the “Dow Theory” community as to whether we’re experiencing a non-confirmation in the Industrials and Transports currently - namely, the Industrials are at a new high for 2009 and are above the 200 day SMA while the Transports are not.  Let’s take a look at both.

Dow Jones Industrial Index:

One may also ask the question “Is there a ‘Three Push’ Reversal pattern forming in the Dow Jones?”  It would appear so, with three consolidating ‘pushes’ or impulses up that have formed on three lower highs in the 3/10 Momentum Oscillator.  That alone is a serious non-confirmation of higher prices.

We also see a volume divergence setting in underneath price, with volume in the Dow Jones Index (1.1 Billion today) reaching a level that is clearly below the recent average - more importantly is the “trailing off.”

One can also see the multitude of ‘dojis’ (often known for their ‘reversal’ signal) that have formed over the last two weeks - that is showing signs of serious indecision.

In terms of Dow Theory, the Industrials have made a new high and have risen above their 200 day Simple Moving Average which is classically bullish… but the Transports Index has not.

Dow Jones Transportation Index:

Again, while the Dow recently formed new highs for 2009, the Transports could neither break above their May highs nor its 200 day simple moving average.

A negative momentum divergence has also formed as well as a negative volume divergence.

I could have easily titled this post “Major Sell Signal in the Dow Jones Index” but I dare not be so bold, given the ability of the market to rise against a negative fundamental and technical backdrop.

From a chart (technical) standpoint, the chart is literally screaming “sell signal,” but still we operate in a world of probabilities and stranger things have happened, so do continue to guard your risk and do your own analysis for additional insights.

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Comment by carlco

2009-06-13 04:26:30

i don’t know enough about technical analysis but maybe someone could compare what happened in Japan’s defence of the Yen in the 90’s against USA’s defence of a depression through treasury bills??

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Comment by jlounsbury59

2009-06-13 14:11:28

I posted a similar conclusion in a lead article om Real Money (TheStreet.com) on Thursday. I like your data presentation. On Real Money, my article was posted next to one by the cheerleader-in-chief, Jim Cramer. If I’m wrong, I’m sure Cramer will serve mince meat (me).

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