The Dow Transportation Index is at an all-time high. Last Friday, the Dow Industrial Average "confirmed" the action of the Transports by besting its most recent highest high from October of last year. At this point both the Dow and the Transports are overbought. The technical indicators suggest at least a modest consolidation is in order.
But, if you follow Dow Theory as I do, this is a big buy signal. I won't jump in quite yet, given the extended nature of the technicals (RSI is at a rather stressed 70 and the Stochastics are at an acute 98 - those numbers always break down, markets go up with those numbers, they come down with those numbers), but the Dow and the Transports are telling us they see no problems ahead. Unless we get a severe correction to work-off the overbought condition, it looks like it is a good time to buy on any pullbacks.
In other words, forget the lackluster nature of the economy, the markets say things are looking up for the near-term. Or do they? There are a number of good arguments for both a bullish and a bearish outlook. As always, nobody really knows.
There is even debate among Dow Theorists, with most claiming the recent action constitutes a change in the primary trend. The Dow Theorist I most respect is Richard Russell and he rather stubbornly insists that we will not be in a bullish primary trend until the all-time high by the Transports (5757 - today) is matched by an all-time high in the Industrials (14,164 - October 9, 2007) .
Frankly, I don't follow Russell's logic here. By closing at 13,712 today, the Dow has ripped right through the previous resistance level 13,610 of last October. It is news to me if an all-time high in one average has to be met with an all-time high in the other average. I'm not sure what the primary trend should be under Dow Theory but the shorter term trend (following some sort of correction) should be up. So, I'm keeping my powder dry and waiting for the pullback. Barring anything drastic there should be a buy point here somewhere.
Yeah, yeah, I know I always toot my horn about gold and silver. And I have generally (but not always) been pessimistic about the economy in this blog. But, I own some regular stock stuff too. Not much. I am cash heavy again. When the indicators change, I change with them. So, let's see what happens in the next few days or weeks. The bull may be back. Now, wouldn't that be a nice surprise?
Nietzsche's Journey to Sorrento
2 weeks ago