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Dow Theory Update For Oct 8: Primary And Even Secondary Trend Remain Bullish

|Includes: SPDR S&P 500 Trust ETF (SPY)
Transports display greater relative strength.

I will start, as usual with the stocks markets. Today the alleged "moribund" Transports closed up while the Industrials and the SPY closed down for the day. So, again, the Transports are displaying greater relative strength than its index peers.

Curiously, enough, as the charts begin to speak in favor of the Transports, articles abound on the internet that insist on the Transports weakness. Just as an example, this article "Will Dow theory overcome the rally?" which you can read here seems oblivious to good Dow Theory and the message of the charts.

Furthermore, such articles frequently say that the Transports lead the Industrials which is not true. As I wrote in this post, Dow Theorist Schaefer wrote that the Transports do not usually lead the market in the early stages of a primary bull market. Since the present bull market began on June 4 (signaled by the Dow Theory on June 29), it is not surprising that only now, four months later the Transports seem to be coming to life again.

Furthermore, Mark Hulbert of MarketWatch has had the integrity to recognize that past analysis of the Transports was wrong and that in no way there is a statistically valid correlation proving that weak Transports lead to weak Industrials. Mark is to be thanked for being open minded and honest. There is nothing wrong in being wrong but in staying wrong, all the contrary evidence notwithstanding. Kudos Mark! His article "True meaning of the Transports' weakness" is a must read and you can find it here.

So now you know, what a good Dow Theorist like Schaefer knew in 1960. Schaefer's insight has been vindicated 52 years latter. The only issue is that most analysts still insist that the Earth is flat, all the contrary evidence notwithstanding.

Therefore, please be advised that the primary (and even secondary) trend of the stock market is bullish and that the Transports' weakness is to be seen as a buying opportunity (maybe the last opportunity for those that missed the primary bull signal in SPY and Industrials, as the market refuses to correct) in a sector that may catch up with the SPY as the bull advances. I give credit for this idea to Schannep and his great "The Dow Theory" website which you can find here. Schannep, more than one month ago, recommended to his subscribers a long position in the Transports. His market call near the Transports' bottom is being vindicated by subsequent market action.

Enough talk. Look at the charts and you will convince yourself about the strengthening Transports. The 10' minutes chart of the last 7 days (Transports in blue in the middle of the chart, Industrials in green on top of the chart, and SPY at the bottom in yellow) tell the story which is evident even to the untrained eye.

Volume today was bullish, since overall the stock markets (save the Transports) went down and volume receded. If we look back at the last 10 days we cannot derive a conclusive picture from volume. And this is OK, as the markets are not supposed to gives us messages all the time.

As to gold, silver and their miners all of them closed down. However, no technical damage, not even of secondary importance has been made.

Have a nice evening.


The Dow Theorist.