Let’s take a look at what happened today. Notice the SP500, Nasdaq 100 and the Russell 2000 failed to close at a new high. More importantly, the Dow Jones Transportation Index failed to close at a new high as well. The failure by the DJT to close at a new high with the DJIA implies a non-confirmed high based on the Dow Theory. This non-confirmed closing high along with the absent of any other market index to close at a new high indicates market weakness.
(click on the chart to enlarge)
In the coming days, it is important to watch how the market reacts to another new closing high from the DJIA, if any. If further non-confirmation and a lack of any index to accompany the next new high, then one should consider limiting one’s long exposure until the market regains its internal strength.
Do you believe the market has topped? I’m not in the business of calling market tops and bottoms. You can draw whatever conclusion you wish. But for me, I will continue to listen to the market and pay attention to the price actions. One will know if the market has topped after it has topped. What is important is to realize the caution flag has been raised. Of course if the DJIA received a confirmed new high, then the caution flag could be removed or lowered. Until then, be defensive and be selective.
