Dow Theory Update

Earlier this month I sent the following e-mail note to my colleagues here.

The Dow Transport index is not confirming the move in the Industrials. That index is making new highs, while the Transports are just below old highs. That leaves the rally in the Industrials in doubt for now.

I included the following graph in the e-mail.







Today I sent them an update as the picture has improved.  Now the Transports are making new, short-term highs, as you can see below.

Dow IndustrialsWith a poke above 9,000 the Industrials continue to make new, relative highs.








Now the Transports have confirmed that move, giving a bit more credence to the rally.







A longer view of Dow Theory shows the Transports have some more goods to haul.  The Industrials are pushing above the January closing highs, while the Transports are still about 6% below those highs.  There are two ways to look at this.  The first is to doubt the rally in the Industrials and assume further new highs are not in the near future.  The second is to assume the rally is for real, and the Transports will catch up.












You can see a more detailed discussion of Dow Theory by clicking here or here.  Here’s a critical view of it, probably written by a professor somewhere who thinks everything should fit into an equation:  here.


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