Dow's 52 Week High Hasn't Been Confirmed

The wise man sees in the misfortune of others what he should avoid.

~ Marcus Aurelius; 121-80 AD, Roman Emperor, Philosopher

The Dow has gone on to put in a series of new 52 week highs, something that has eluded both the transports and the utilities. We personally do not place too much emphasis on the Dow Theory which focuses on the transports. However, we do place quite a bit of weight on the utilities as they generally lead both the industrials and the transports. At the very least, the Utilities should have put in one new 52 week high and more importantly they should have done it before the industrials and or the transports. As both the transports and the utilities have not put in new highs we have what amounts to a double non confirmation signal. This suggests that the odds of the Dow mounting a strong to decent correction are pretty high.

If we examine the 20 stocks that make up this average we find that at least 10 of 20 stocks have not put in new highs. The stocks are BNI, AMR, LUV, UNP, CAL, EXPD, GMT, JBLU, NSC, and OSG. The index is therefore, being carried higher by only 10 stocks.

Finally, in the early stages of the rally total volume traded surged to and past the 7 billion mark several times but not one single high took place on even 7 billion shares of volume. In fact, since the 17th of Sept total volume on the NYSE has not even once reached the 7 billion mark.

The two charts clearly illustrate the divergence between the Dow industrials and the Dow transports and utilities. At this point in time, prudence and caution are warranted and traders should think twice before jumping into the markets. For those individuals willing to take on a bit of risk the market can be shorted via DOG, DXD, REW, etc.

The young man knows the rules, but the old man knows the exceptions.

~ Oliver Wendell Holmes

Disclosure: We have no positions in the above mentioned stocks or ETFs.

Comments

[ak47:]

Does volume really mean anything anymore?
The 10/24/1929 record of 16+ million shares held up for decades, but now that many shares are transacted in the first minute of trading.
How is it possible to tell what the investor as opposed to the computer-driven volume is?

Oct 25 09:38 AM

[granger:]

Volume is of supreme importance.

Price advertises, time regulates, volume validates. We are going lower in my opinion.

Oct 25 06:42 PM

[User 127440:]

ak47... volume means EVERYTHING.

If for example only 10,000 shares of the Dow 30 were traded on any particular day, it would be excessively easy for any institution to make the Dow whatever they wanted it to be.

Additionally if the DOW shoots up 3% today but trades 1 billion shares and drops 3% tomorrow but trades 5 billion shares, its indicative that people are more willing to sell than to buy.

It's RELATIVE volume not ABSOLUTE volume (16 million shares on 10/24/1929 means nothing if 16 million shares were traded daily then, the fact that that was NOT average volume speaks volumes).

Oct 26 12:52 PM