Some market commentators think the venerable Dow Theory is giving investors the green light to buy stocks.
The SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) fell on Tuesday but remains close to its 52-week high.
The Dow is the average of the value of one share each of 30 of the largest companies in the United States. It is subject to supply and demand and suggests the direction the U.S. economy is leaning.
Another bellwether for the U.S. economy is the the Dow Jones Transportation Index, which is the benchmark for the iShares Dow Jones Transportation Average ETF (NYSEArca: IYT).
Dow Theorists focus particular attention on how these two benchmarks behave after any market correction, according to Mark Hulbert on MarketWatch. When both indexes clear their respective highs, it is a signal for recovery. If both indexes pass their previous peaks, such as what was seen in February, the trend is confirmed.
Tomi Kilgore for MarketWatch reports that another rule of the Dow Theory is volume, which should also increase with the momentum. This is secondary to price moves. However, lower investor participation this time around have many on the cautious side.
Tisha Guerrero contributed to this article.
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.