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Dow Theory Nonconfirmation in Transports and Industrials
Courtesy of Corey Rosenbloom of Afraid to Trade
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.
Corey Rosenbloom, CMT
Afraid to Trade.com
