The Wall Street Journal reports that Dow Jones Industrial Average (DJIA) closed a mere fraction of a point above its November low yesterday. What they don't report is that if it should close below its low, it will be confirmed by a low in the Dow Jones Transportation Average (DJTA). It's a distinction that matters.
Dow Theory goes back to the late 19th Century and Charles Dow, original publisher of the Wall Street Journal. He followed the price action of the Industrial Average and what was then call the Railroad Average (later re-named the Transportation Average). Observing their relative price action helped him to guage what he called the Primary Trend of the stock market.
The point here is that if both averages close below their November lows, it is a strong signal that 1) The Primary Trend of the stock market continues to be bearish; 2) there's trouble ahead.
The mere fact that the Industrial Average might close below its November low doesn't, in and of itself, make such a strong statement.
And here's the rub: the Transports already closed below their November lows a few weeks ago. So could the stage be set for a strong bear market confirmation, along with a more dire outlook for the economy? That's what we'll have to watch carefully in the coming days.
Dow Theory goes back to the late 19th Century and Charles Dow, original publisher of the Wall Street Journal. He followed the price action of the Industrial Average and what was then call the Railroad Average (later re-named the Transportation Average). Observing their relative price action helped him to guage what he called the Primary Trend of the stock market.
The point here is that if both averages close below their November lows, it is a strong signal that 1) The Primary Trend of the stock market continues to be bearish; 2) there's trouble ahead.
The mere fact that the Industrial Average might close below its November low doesn't, in and of itself, make such a strong statement.
And here's the rub: the Transports already closed below their November lows a few weeks ago. So could the stage be set for a strong bear market confirmation, along with a more dire outlook for the economy? That's what we'll have to watch carefully in the coming days.
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