Reply #1: WrapUp by Tim W. Wood [View All]

[ozymandius]

THE DOW REPORT
"Dow Theory"

The Dow Jones Industrial Average has managed to move to yet another high this week. However, this high has thus far not been confirmed by the Dow Jones Transportation Average. This has set up what is known as a Dow theory non-confirmation. In fact, the Transports have also moved below their last secondary reaction low, which occurred on November 21, 2003. This intra-day low occurred at 2,837.42. From a Dow theory perspective, we use the daily close and that was also seen on November 21, 2003 at 2,837.42. So we now have two closing lows below both of these levels. This can be seen by the blue line on the chart of the Transports below. This violation strongly suggests that the intermediate term trend for the Transports has now turned down. It would take a move by the Transports back above the January highs to correct this condition. Anything is possible, but given the overbought levels of the market it is doubtful if this non-confirmation will be corrected. Any closing low below the February 4, 2004 low at 2,822.11 will serve as confirmation that this decline is just beginning. Such a decline would also serve as additional confirmation that we are not likely to see the Dow theory non-confirmation corrected any time soon and we should then expect to see the Industrials follow the Transports downward.

Mr. Wood makes very technical concepts easy to understand