Is a Dow Theory Non-Confirmation In Play?

Is a Dow Theory Non-Confirmation In Play?

Dow Theory:

The original Dow Theory states that the market is in an upward trend if either the industrial or transportation index advances above a previous important high and is accompanied or followed by a similar advance in the other average. For example, if the Dow Jones Industrial Average (DJIA) climbs to a new all-time high, and the Dow Jones Transportation Average (DJTA) follows suit within a reasonable period of time, the upward trend is confirmed.

What’s happening right now?

On Oct 3, 2018 the industrials (DJIA) made an all-time high at the time of 26,951. But that record didn’t hold for long, as the Dow made a slight new record high in July 2019, and then starting in late-October 2019, rallied strongly and continuously, making new record highs week after week all the way into this month, February 2020.  The high in the Dow so far is 29,415, made just today, February 11.  That’s an increase of 9.4% above the October 2018 high.

In contrast, the Dow Jones Transportation Average (DJTA) all time high from Sept 14, 2018 @ 11,623 STILL STANDS.  Moving forward to the first quarter of 2020, the transports high for the new year so far is 11,359, and that occurred back on January 17.  As of this writing (Feb 11, 2020) the transports are 6.2% BELOW their September 2018 all-time high, and 4.0% below their January 2020 high.  There is no question that the transports are substantially lagging the industrials. Unless the transports can take off to the upside and make a new all-time high within the next few weeks, the odds of a Dow Theory non-confirmation at this late juncture are very high, and that would suggest that a trend change to the downside in the U.S. stock market leaders may be relatively imminent.

Technical Analysis:

Below is a screenshot of Sid’s DJTA weekly chart, including his Elliott wave count, and Hurst cycle analysis: (click to enlarge)

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