The Dow Theory, one of Wall Street’s oldest tools used to decipher the longer-term direction of stock prices, is flashing a warning sign about stocks and exchange traded funds (ETFs). The Dow Theory is a market-trend forecasting system developed in the late 19th century by Wall Street Journal editor Charles Dow. It is close to signaling the main trend of the market is down, or bearish, after a five-year bull run. Adam Shell for USA Today reports that if the Dow industrial average (companies that make goods) and the Dow transportation average (companies that ship goods) both breach significant market levels, a trend change is confirmed.
The transports are trading below their August low, when the first scare of the credit crisis hit. Industrials plunged 4.5% the past three sessions and are hovering at 1.5% above their August low. If industrials close at 12,845.78, below their August low, the bear has officially roared. But this morning’s rebound in the markets is holding off the bear for now. Stay tuned.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.