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In another Barron's article, Richard Russell explains how the
double-top on the DJIA has yet to be confirmed (if you follow Dow
Theory) by the DJ Transportation Index . . . yet.
Below is the relevant excerpt. The accompanying chart of the
Transports shows a potential head-and-shoulders top forming!
The entire article is at
http://interactive.wsj.com/edition/current/articles/SB878359270192351500.htm
Chip
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<snip>
On Aug. 6, the Industrials closed at 8259.31, a record high. The same
day, the Transports reached a high of 3009.25. From there, both
averages declined a bit. The Transports slipped to 2864.96 Aug. 15,
while the DJIA dropped to 7622.42 on Aug. 29.
>From the August lows, a new advance began. This time, the gains halted
when the Industrials reached 8178.31 on Oct. 7. The Transports,
however, continued to rally to an all-time high of 3368.33 on Oct. 21.
But the Industrials, as the chart shows, refused by a wide margin to
do the same. Under Dow Theory, this means that they refused to
"confirm" the record Transport highs.
The market turned down again. On Oct. 27, the DJIA smashed through its
August reaction low of 7622.42. This action produced one-half of a Dow
Theory primary bear-market signal. A half-signal isn't conclusive, but
it's certainly worrisome. The situation remains critical. To confirm
the Industrials' action, Transports must break below their own August
low of 2864.96.
If this occurs, then under classic Dow Theory, a primary bear market
will have been signaled, and the bull's long gallop finally will have
ended. The optimists can take heart from the fact that there's still
some margin for error: On Friday, the Transports closed at 3131.46.
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