Lets finish this week with some classic technical analysis. One of the oldest US forms of technical analysis is Dow Theory. It has many tenets but the one that is most watched is a signal that confirms the primary trend in the market. This is an old set of ideas, dating back to when the Dow Jones Industrial Average was important to traders (only news presenters use it now) and there were 3 averages: the Industrials, Transports and Utilities.
That was enough then because trains and utilities were all there was in public companies outside of industrial manufacturers. And the signal that was widely watched was for the Industrial Average and the Transportation Average to make new highs to confirm the primary trend higher. Utilities were the equivalent of bonds for investors at that point so it makes sense if the other two sectors are making higher highs that the market is going higher, to the Moon.
But now the Dow Industrials have less importance than the S&P 500, which is the market's key benchmark. That's ok. The Dow signal still holds value. But if we move to the current environment, then maybe upon confirmation we should shift toward looking for the market to go to Mars.
The chart above can be used to show how this signal is meant to be interpreted. With the price action over the last six months shown, both indexes were in a down trend. But after the August bottom they made a high in mid September before pulling back. From the higher low, the Industrials have now moved over the mid September high.
And though the Transports have technically done the same, they have stalled. Friday's breach of the 8260.93-high from October 12 seals the deal and solidly confirms the primary market trend higher toward Mars.
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