Category Archives: Dow Theory

Article Commentary and Reply

Posted on February 8, 2010 by | Comments Off on Article Commentary and Reply

The following is a response by a reader regarding the February 8, 2010 article outlining all of the transactions from 2008:

Reader Comment:

I am assuming that by "portfolio" is meant all investable funds among all asset classes like stocks, bonds, commodities, etc.

1) You had 94% of all investable funds in Wesco at one time which to me appears extreme concentration in one asset class, regardless of how confident one is about the prospects. And since the future is unpredictable, I believe the risk/reward outcome unnecessarily becomes a hostage to the "Black Swan" events.

I do note that you had a timely and efficient loss control mechanism in place and that you sold out at a minimal loss. But that might be because you had such a huge overweight in that one stock, forcing you to watch it like a hawk. Had it been a small weight, you might have acted differently, even not having sold out and thus made a much greater profit in absolute terms since Wesco climbed 10% to 15% higher soon after you sold it.

This is a good example of why single, huge overweight concentration in one security is generally counterproductive because we are forced into taking quick actions based on short term volatility and transient perceptions of risk.

2) Almost ten times out of a total of 40 trades you let your realized losses exceed 10% and in one case even go as high as 46%. I am not averse to enduring high unrealized losses in special cases wherein we are convinced about the intrinsic value of the investment, and are willing to "ride out the storm". This is a part of the process of investing. However, I wonder what intrinsic value, or a miraculous turnaround, you were seeing holding Fannie May during the summer and early fall of 2008. Granted, you had a small allocation to this name at the time, but the expectations surrounding this trade appear to me to be speculative in nature.

3) After September every trade was a losing trade (except the three with small profits), all the way through the end of the year. And that was not in the least unusual, since being in the stock market was simply not the right strategy at the time. I am not sure what the Dow Theory was telling us around this time -- during this period of extreme volatility and spreading risks throughout the investment landscape globally. Maybe you can throw some light with respect to the Dow Theory in this context, for this period. And also whether any other asset allocations were considered and rejected. (For instance, 4Q08 provided bountiful profits in the Treasury bonds with minimal volatility and low risk.)

Touc's Reply:

Yes, by portfolio I mean all investable funds that are transacted through a brokerage firm. The percentages given are specific to any and all cash holdings in all brokerage accounts. As part of a truly diversified portfolio, I hold physical gold and silver, real estate and a minority ownership in a restaurant.
Your points about extreme concentration are quite valid, on the surface. However, as you’ll note in my article “Diversification Doesn’t Matter,” the general declines of the market are going to take out an investor no matter how diversified. In fact, the more diversified the account within the realm of stocks, the more likely diminished returns will occur.
Regarding the issue of “black swan” events, as a student of stock market crashes and panics, I have built in the prospect of a “black swan” in every transaction. First, I assume that I will lose at least 50% of my investment before entering into an investment. Second, I accept the reality of the situation based on such thinking. Third, by having an undiversified portfolio, I can clearly address scenarios that exceed losses of 50% or more without a deleterious impact on my mental faculties. With this in mind, I can better determine the risks that I’m about to take.
The matter of Wesco Financial (WSC) is an interesting one to point out. There are at least a couple thoughts, which I will try to elucidate upon. First and foremost is the transaction that preceded the WSC trade. In less than 2 months I was able to advance 96% of my portfolio by 10% with Family Dollar Stores (FDO). All that mattered to me was to not wipe out the gain immediately after accomplishing such a feat. As pointed out, I probably would have acted differently had the position been smaller. The tendency of most diversified (smaller postions) investors is to watch calmly as their entire portfolio declines until the market or stock cannot fall any further, at which point the investor panics and sells at the bottom.
The next issue of concern regarding the Wesco (WSC) trade is the missed gains that followed after selling the stock. This is something that is most pronounced with the entire sell recommendations that I have given on both Dividend Inc. and New Low Observer. In my opinion, investors face two types of greed, one for profit and one for loss. Under the conditions of both forms of greed, only losses can become permanent. I seek to mitigate both extremes of greed for what I am ultimately able to keep. I am unanimous (wink) in declaring that I seek mediocre returns or “fair profits.” In some respects, my willingness to accept missed gains and 50% losses keeps me righted. The fact that my returns have exceeded the downward spiral of 2008 with positive gains is only icing on the cake.
To be honest, I never felt the strain of getting in or out of a stock quickly enough. There never was a sense of being rushed. No wondering in the middle of the night what is going to happen to my outsized trade? After all, either I’m right or I am wrong and the markets will tell me soon enough. For this reason, I was never overwhelmed by the sense that somehow I missed an opportunity. I kept my eye on all the current and former Dividend Achievers and stuck to my core competency.
Fannie Mae (FNM) wasn’t a situation of whether the company had any intrinsic value or not. I simply speculated that the government assurance would bolster the share price of FNM. I was completely wrong about the FNM speculation. However, I ensured that the losses didn’t exceed the gains from the (AIG) speculation that occurred on 2/28/2008, 9/23/2008 with 82% and 38% respectively. Also, I didn’t want to wipe out the Bear Stearns (BSC) speculation of March 14, 2008 with 26% of the portfolio. Another matter of concern is the fact that by September 29, 2008, I had amassed gains of 41% in the same portfolio. I knew I was “playing” with house money. FNM just happened to be one (of many) that didn’t go my way.
The question of my take on Dow Theory in the last quarter of 2008 is very clear. In a Dividend Inc. article titled “A Key Point for the Market” dated October 6, 2008, I stated the following*:
“Today the Dow Jones Industrial Average has fallen to the minimum of 9525.32. This exceeds the Dow Theory projection of 9531.11 posted on this blog on September 17, 2008. Nothing that has happened thus far is surprising according to Dow's Theory. It becomes academic at this point to suggest that we are either going to the 7197.60 level…”
On September 17, 2008, in an article titled “Dow Theory on the Dow Industrials,” I stated the following*:
“After today's stock market action the Dow Jones Industrial Average closed at the level of 10,609.66. This is below the 50% Principal as devised by E. George Schaefer. The 50% principal indicates that if a stock or index falls below this level it will fall, at minimum to the 2/3 level of Dow's Theory. Right now the 2/3 level for the Dow Jones Industrial Average is 9531.11. If the Dow falls below the 2/3 level the next stop will be 7,197.60.”
Although Dow Theory had given a bear market signal, as indicated by Richard Russell’s November 2007 Barron’s article, I stuck to my core competency which is current and former Dividend Achievers with some speculation in gold and silver stocks. Dow Theory, for me, has acted as a guidepost for the market’s general direction, which affects the concentration of each individual stock. However, if Dow Theory were interpreted as Charles Dow has indicated (an approach which I reiterate throughout the site), investors would do well to heed Dow’s remark that “even in a bear market, this method of trading will usually be found safe…”
Thank you for your sincere interest and the opportunity to discuss, at length, the ideas that went into some of my trades during 2008.
-Touc
*anyone interested in the articles dated September 17, 2008 or October 6, 2008 can send an email to me. Those who regularly received the RSS feed or automatic updates should look under the respective dates that the feeds or emails went out from Dividend Inc. I hope you still have those articles.

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Posted in Black Swan, Charles Dow, Dow Theory, Richard Russell, Transaction Review

Dow Theory

Posted on January 24, 2010 by | Comments Off on Dow Theory
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

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Posted in Dow Theory

Dow Theory

Posted on January 10, 2010 by | Leave a comment
There are three areas that I would like to cover regarding Dow Theory. First I’d like to discuss the Dow Theory confirmation of the trend. Next, I want to cover the concept of a “line” and it’s potential impact on the Dow Industrials. Finally, I’d like to discuss the Dow theory 50% rule. Additionally, I want to describe what I believe are the future projections for the market going forward.

On January 8, 2010, the Dow Industrials and the Dow Transports confirmed the Dow theory cyclical bull market trend of the stock market. The significance of this is that we can expect the Dow Industrials to head much higher in spite of the threat of future economic uncertainties. Below are the recent charts for the Dow Transports and the Dow Industrials.

Since November 9, 2009, the Dow Industrials have traded in a tight range of less than 3%. According to Dow theory, the market trading in a range of about 5% is considered to be a “line.” A line is a key indication of accumulation or distribution of stocks. It is not known whether or not accumulation or distribution has taken place until the market either breaks above the high range or below the low range of the line.

According to Dow Theory, the formation of a line can act as the equivalent of a market decline or secondary reaction in a bull market if it lasts for over eight weeks. In this instance, the line lasted exactly 8 weeks. I’m hesitant to accept that the “rule” of 8 weeks can be trusted altogether. However, the upward bias of the market has indicated that the most recent breakout will be followed until proven otherwise. It is important to note that secondary reactions act as a release valve from built-up pressure in the market. The fact that the market has responded by breaking above the line that had been drawn indicates that the market has successfully absorbed the large amount of shares that have been distributed by corporations as well as the negative economic news since the March 2009 low.

Because the Dow Industrials and the Dow Transports have both broken to brand new highs at the same time, along with the fact that the Dow Industrials have broken above the line that has been drawn since November 9, 2009, we can safely guess that the market has little desire to go lower and that the bull market is still in place.

Below are the charts of the Dow Industrials and Dow Transports retracements from their respective peaks in 2007. The Dow Industrials have retraced more than 50% of the prior peak while the Transports have retraced more than 60% of the prior peak. This suggests a possible move to retest the high of 14,000 and 5,400. According to Charles Dow, if the market can retrace more than half of the prior move, it (the market) will likely go to the old level that was previously established. One way this was demonstrated was during the decline from October 2007 to March 2009. The decline that took place accelerated significantly once the Dow Industrials exceeded 50% of the rise from September 2002 to October 2007. Likewise, we should be on the lookout for a similar accelerated rise in the market on the way to 14,000.

In an October 15, 2009 article, I charted what I believe to be two scenarios where the market would go. In the first scenario, I suggested that the Dow Industrials would continue on an upward trajectory. Basically, I connected the March 9, 2009 low with the low of July 2009 into the future. In the other scenario, I suggested that the Dow would be able to decline back to the July 2009 low and still be considered a bull market. Additionally, using cycle analysis, I suggested that the market would reach its respective lows between the period of December 2009 and late February 2010.

Since writing the article on October 15, 2009, the Dow Industrials have remained above the upward (red) trendline (see chart below.) I continue to believe that the strongest resistance for the market will be when the Dow Industrials get to 10,700. At this juncture, the Dow Industrials will either break out to the upside in dramatic fashion or retrace back to 9,500. However, given the strong indications from the Dow Industrials and Dow Transports on Friday, I suspect that we can reach 12,000 not long after the month of February 2010.

Considering that this is a cyclical bull market, within the context of a secular bear market, I understand that a reaction of 100% (going back to 14,164 on the Dow Industrials) is not unusual. Additionally, valuations of the market are not at historical lows. Investors should seek out quality companies that are at or near a new low that seem to have viable business models. My preference tends to favor Dividend Achievers or companies that have increased their dividend at least 10 years in a row. -Touc

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Posted in Dow Theory, Dow Theory Bull Market indication, Dow Theory Confirmation

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Dow Theory

Posted on September 24, 2009 by | Comments Off on Dow Theory
November 4, 2008 is proving to be a significant challenge for the stock market. I have mentioned many times the considerable amount of resistance that November 4th would have on the The Dow Industrials and Dow Transports. However, if viewed from the perspective of a composite index, an index that includes all the stocks in the Dow Industrials, Dow Transports and Dow Utility Indexes, we get a picture that is undeniably negative in the short term.

In the chart below, we see a one year diagram of the Dow Jones Composite index of 65 companies. The composite index briefly exceeded the November 4, 2008 high of 3407.33 by only 1.82 points on September 16, 2009. It is important to know that the high for the day of September 16, 2009 did not exceed the high for the day of November 4, 2008. The fact that the market cannot go above November 4, 2008 so far has much broader implications than just in the financial arena.

Since the September 16th peak the Dow Jones Composite Index has traced out an interesting pattern lower. This same pattern could not be seen if you looked at any one of the individual indexes alone. In the chart below, we can see where the next destination might be for the markets on the downside.

The following are the prospective downside targets for the Dow Jones Composite Index as represented in the inverted chart above:

  • 3293.86-A
  • 3185.02-B
  • 3151.72-C
  • 3125.28-D
  • 2812.05-E

Why have I inverted the chart of the index? Because there is uniform agreement among all great Dow Theorists that calling a peak is the most challenging thing to do. It is the nature of humans to be positive, otherwise most progress isn't possible. With the chart showing a bottom instead of a peak we can feel comfortable seeing the prospects for the future. In terms of Dow Theory, the inverted chart allows us to see a bear market from the same context that we can see a potential bull market.

Now, to play further mind games on you, I recommend that you look at the most recent trend of the Composite Index. After posting above the 3407.33 on September 16th at 3409.15, the market has exhibited two lower peaks on the September 18th and September 22nd. This indicates that a market breakdown to the 3293.86 level (point A) is a probability.
The declines that I have mentioned are in the context of a cyclical bull market within a larger secular bear market. Any of the declines that I have pointed out are all acceptable and constructive for a bull market. Soon after the declines are out of the way we can expect that the market will retest the old high before going higher (both Transports and Industrials) or confirming the previous declining trend.

If you have questions or thoughts then please email me at the following link.

Please revisit Dividend Inc. for editing and revisions to this post.

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Posted in Dow Theory

Dow Theory

Posted on September 2, 2009 by | Comments Off on Dow Theory
In reading The Stock Market Barometer by William Peter Hamilton, I find that there is significant contribution to the topic of Dow Theory. It is Hamilton’s book that led to the even better The Dow Theory and Dow’s Theory Applied to Business and Banking by Robert Rhea. One area of contention is my belief that Charles H. Dow was absolutely right about double tops and double bottoms. Hamilton, in reference to double tops and double bottoms, says:

“In the same editorial (Wall Street Journal, 1/4/1902) Dow goes on to give a useful definition from which legitimate inferences may drawn. He says: ...

‘It is a bull period as long as the average of one high point exceeds that of previous high points. It is a bear period when the low point becomes lower than the previous low points. It is often difficult to judge whether the end of an advance has come because the movement of prices is that which would occur if the main tendency had changed. Yet, it may only be an unusually pronounced secondary movement.’

This passage contains, by implication, both the idea of ‘double tops’ and ‘double bottoms’ (which I frankly confess I have not found essential or greatly useful) and the idea of a ‘line,’ as shown in the narrow fluctuation of the averages over a recognized period, necessarily one either of accumulation or distribution.”

Hamilton, William Peter. Stock Market Barometer. Harper and Brothers. 1922. page 32.

In my May 15, 2009 article, I pointed out how important double tops and double bottoms have played a role in defining the direction of the Industrials and Transports. So important is the role of double tops and double bottoms that they have accounted for 72% of the major bull and bear moves in the stock market. The current market action, since May 1st, has been in favor of double tops and bottoms in the Transports index portending the change in the market direction in the intermediate term.

As you can see from the chart below, there have been two double tops and two double bottoms. So far, both double bottoms (B and C) and one double top (A) have been followed by sizable moves in the Transportation and Industrial index.

Currently, we're faced with the double top indicated as D1 and D2. From what I can tell, if the decline from D2 goes any further below the August 17th low then we may retrace up to 75% of the gains from C2 to D1. This assessment is based on the prior correction of A2 to C1 from the rise of B2 to A2. On the way down to C2 there are smaller support levels however their significance is not as pronounced as the percentage change from A2 to C1. We should assume the worst case scenario and expect that the Transports will go to 3239.36. Falling to points C1 and B1 would be the next order of operation.

Interestingly, Charles H. Dow says that the action of double tops and double bottoms is most commonly associated with market manipulation. In Hamilton's Stock Market Barometer there is a July 20, 1901 Wall Street Journal excerpt where Dow says:

"Another method [for detecting manipulation] is what is called the theory of double tops. Records of trading show that in many cases when a stock reaches top it will have a moderate decline and then go back again to near the highest figures. If after such a move, the price again recedes, it is liable to decline some distance."

Hamilton, William Peter. Stock Market Barometer. Harper and Brothers. 1922. page 36.

The method described by Dow is commonly executed by institutions and other large money interests. The term that is most often used today is called a trial balloon. If successful, the money interests can gauge small investors willingness to sell or buy stocks and then execute a bull or bear raid. Today, it would seem unheard of for the editor of the Wall Street Journal to suggest there is manipulation and then go so far as tell how to detect it. And yet, the words of Charles H. Dow ring true today as they did in early 1900.

Note: On August 25th I said that the great Dow Theorist Richard Russell was wrong about his call of a new or renewed bull market. Well, after placing a call to Russell and talking to his staff the bull market indication was taken away the very next day and a non-confirmation was iterated. I'm sure that Mr. Russell got many calls on that error so I don't think that I swayed him personally (though I'd love to think that I did.)

My goal wasn't to have the bull market indication taken away, instead it was to demonstrate that a non-confirmation needed to be worked through. For this reason I still stand by my belief that the bullish move (within the context of secular bear market) from the March 9th low isn't over unless we resolutely pierce the 8146 level on the Dow Industrials. Touc.


Please revisit Dividend Inc. for editing and revisions to this post.

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Posted in book, Dow Theory, Dow Theory Non confirmation

Dow Theory

Posted on August 25, 2009 by | Comments Off on Dow Theory
The great Dow Theorist Richard Russell (www.dowtheoryletters.com) has indicated that based on today's market action we are now (again) in a bull market. This is after Mr. Russell had taken away his bullish stance from August 14, 2009 to August 24, 2009. While I respect Mr. Russell's over 50 year contribution to Dow Theory, the longest recorded history of Dow Theory from a single person, I have to disagree with the notion that we can say with confidence that the bullish indication needed to be taken out on the 14th and that we've achieved a confirmation of the trend today.

Regarding the matter of August 13th and 14th, on August 13th the Industrials and Transports both hit a new high (on a closing basis) from the March 9th low. On August 14th both indices fell in unison, achieving a temporary low on August 17th. However, what makes for a reversal of a bullish pattern according to Dow Theory is that both indices take out the point at which both indices initiated the bullish move to begin with. This means that both indexes would have had to fall below their respective July 23rd breakout levels. For the Industrials this would be the 8799.25 and for the Transports this would be 3404.11. The decline from the August 13th high never took out the levels that initiated the bull market indication.

It should be noted that on July 22nd, Richard Russell had a bear market indication at the end of the trading day. On July 23rd, Mr. Russell had a bull market indication prominently displayed at the end of the trading day. As I've said in the past, most if not all, Dow Theorist should come to the same conclusion at the same time. This is widely represented by searching "Dow Theory " and "July 23, 2009."

As I said in my July 24th Dow Theory commentary, what remains unresolved according to Dow Theory is the fact that the Dow Jones Transportation Average has not gone above the previous high of 3774.12 while the Industrials keep racking up new, albeit tepid on a percent basis, daily highs. What we have currently is what is known as a classic Dow Theory non-confirmation. This non-confirmation is resolved by the Transports exceeding 3774.12 along with the Industrials making a new high (above each previous high point since March 9th) or both indexes going below the breakout level that initiated the bull market.

I am hopeful that Mr. Russell will either correct me on my interpretation (giving me the chance to learn something new from the best) or that he revises his indication to reflect that the market is bullish with a pending non-confirmation that needs to be resolved. Touc.

Please revisit Dividend Inc. for editing and revisions to this post.

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Posted in Dow Theory, Dow Theory Non confirmation

Dow Theory

Posted on August 23, 2009 by | Comments Off on Dow Theory
When it comes to Dow Theory, we have to carefully monitor the market to see if we get a clear sign of a non-confirmation of the trend. A non-confirmation of the trend can take place in many ways and is most prominent when one index goes up while the other goes down. Anyone interested in Dow Theory must be vigilant for signals that might indicate that a reversal of the primary or secondary trend is in the offing.

On Friday August 21, 2009, the Dow Jones Industrial Average (^DJI) exceeded the prior high of 9398.19 set on Wednesday August 12th. Unfortunately, the Dow Jones Transportation Index (^DJT) are lagging in the ability to exceed the high of 3774.12 set on Thursday August 13th. The only thing that favors the Transports in this instance is the fact that on a percentage basis the Transports rose 2.58% versus the Industrials 1.67% increase. This indicates that there is relatively strong interest in the Transports. Hopefully this enthusiasm will spill over into today's trading.

If the Transports do not break above the August 13th high then we might be on track for a non-confirmation. A non-confirmation means that the recent upward trend in the market will be coming to an end soon. Conversely, if the Transports break the indicated high while the Industrials move moderately higher then we could be in good shape for the short term.

Dow Theory Q & A

Q.When looking at a chart with weekly Dow prices, how is the weekly price calculated? Is it the Friday close or is it an average of the whole weeks close?

A. In all my readings of Dow Theory, I cannot remember anyone suggesting the use of weekly data for analysis. This doesn't mean that weekly data isn't useful, you might see a consistent pattern that I would otherwise overlook. Dow Theory is supposed to be calculated by using the closing price for both indices on a daily basis. I have bastardized Dow Theory by taking the high and low price of a given period as a way to get a sense of herd mentality or market psychology. This is in contrast to taking only the closing price.

Depending on the source, weekly data is calculated using the opening price from the open on Monday, the high and low price is from whichever days in the week that had either number and the closing price from the Friday close. An average of the week isn't how the weekly closing price is calculated. Touc.


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Posted in Dow Theory, Dow Theory Non confirmation, Q and A

Dow Theory

Posted on July 23, 2009 by | Comments Off on Dow Theory
The Dow Jones Industrials and the Dow Jones Transports both broke above previous highs on July 23rd. As shown below, the previous highs that were exceeded were the June 12th high of 8799.25 for the Industrials (blue line) and the May 6th high of 3404.11 for the Transports (red line.) Based on the fact that both indexes went to new highs on the same day would normally mean that we are in a new bull market. However, because Dow Theory considers trading volume as well as price, the fact that trading volume has been declining throughout the most recent price rise means that there isn't broad participation by either institutional or retail investors. Therefore, I would label this a cyclical bull market which can change direction to the downside without warning.

The following are the upside and downside targets for the Dow Industrials:

Upside:
  • 9,626
  • 10,302 (fair value)
  • 11,588
Downside:
  • 8192.89
  • 7754.68 (fair value)
  • 7316.49
At this point it becomes challenging to suggest buying any stocks that have already run up in price since the March 9th low. Direct exposure to the Dow Industrials or Transports might be the best way to take advantage of further moves upwards. I prefer the individual stocks with the largest weighting in the respective indexes. However, most investors probably would feel more comfortable with the exchange traded funds (ETF) DIA or IYT. ETFs aren't my cup of tea but they are alternatives to picking individual stocks.
If you've followed my blog for any amount of time then you'd know that I'm all for selling stocks that are relatively high (up from the March 9th low) and researching Dividend Achievers that are at or near a new lows. Right now there are only three Dividend Achievers within 10% of their 1 year low. The companies are Wal Mart (WMT), Bard Corp. (BCR), and Abbott Labs (ABT). I'm not comfortable with Wal Mart as explained in my June 18th posting. Additionally, I don't expect to be investing more than 50% of my portfolio during this period unless a company gets extremely underpriced. Good luck with your investing. Touc.
Please revisit Dividend Inc. for editing and revisions to this post.

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Posted in Dow Theory, Dow Theory Bull Market indication

Dow Theory

Posted on July 21, 2009 by | Comments Off on Dow Theory
Today the Dow Jones Industrials reached an intraday high of 8927.13. This exceeds my prior Market Barometer target of 8774. For some reason the Industrials are able make higher highs. Unfortunately, the Dow Jones Transports continue to fail to breach the upside target. The Transports fell to 3360.14.

According to Dow's Theory, the action of the Transports is the most resounding evidence of the market's inability to go higher on a sustained basis. Each time the Transports get close to the 3405 level we get a pullback in the market. Additionally, the Transports fall by a greater percentage than the Industrials making it much harder to recover from any declines. We need full participation of the Transports to feel confident about the market direction being up.

I have changed the Market Barometer upside target for the Industrials to 8928. I don't see (showing my limitations) the Industrials going much farther than 8928 without the Transports exceeding the 3405 level. Touc.

Please revisit Dividend Inc. for editing and revisions to this post.

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Posted in Dow Theory, Market Barometer, update