According to Dow Theory the following are the downside targets for the Dow Industrials:
- 9,324.82 (33% retracement)
- 8,603.64 (50%)
- 7,882.44 (66%)
- 6,440.06 (100%)
The downside targets for the Dow Tranports are:
- 3,576.92 (33% retracement)
- 3,213.19 (50%)
- 2,849.45 (66%)
- 2,121.98 (100%)
Dow Theory indicates that a retracement of 33% to 66% is consistent with a "normal" correction of the previous upside action. Falling below the 50% retracement would be a market decline with a negative bias while staying above the 50% level would be a positive bias for the market overall.
Dow Theory would work fine if it wasn't for the real world interjecting facts and data from time to time. One issue that is of paramount concern is if the Dow Jones Transportation Index falls below the low set on November 2, 2009. As you look at the chart below, you can see that the Transports have traced out a pattern of lower lows that started on October 2, 2009. If we get much lower than 3,350 on the Transports we could consider this an unofficial, cyclical bear market.
Now that the markets have turned we have a solid perspective to work from. Now may be the time to run the numbers on the companies on our watch lists so that you're ready for when the market makes either a turn to the upside or gives the next bull market indication. -Touc