The Dow Jones Transportation index made a new all time high today and that put the Dow Theory into action. For those that are familiar with the Dow Theory, then you already know what to expect for the near future. For those that is unfamiliar with the Dow Theory, then read on...
Here is a brief and simplistic description of the Dow Theory. The Dow Theory is based on two major Dow Jones indexes, the Industrial and the Transportation. The behavior between these two indexes will indicate the different market stages (economic cycle). At the beginning of a new cycle, the Dow Jones Transportation will make a new high without being confirmed by the Dow Jones Industrial. Then the next stage, both indexes will jointly make a new high. And in the final stage, only the Dow Jones Industrial will make a new high. From this description, the Dow Theory is simply a progression of non-confirmation, confirmation, and non-confirmation between the Dow Jones Industrial and the Dow Jones Transportation.
Today's new high made by the Dow Jones Transportation signify it is in the first stage of the Dow Theory. In the next stage, the Dow Theory indicates there will be a new high from the Dow Jones Industrial. If that is the case, see this post “The State Of The Market” for clues on where the next new high for the Dow Jones Industrial might be.
Disclosure: Long DIA, SPY, QQQ
