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Dow Theory May Crack: Rally Stays Intact As Long As This Holds

Dow Theory links a bull market to the combination of the Dow Jones Industrial Average and the Dow Transportation Average. When both are strong, the markets are strong. If one breaks, the other will likely begin to collapse. This brings up a major concern as the iShares Dow Jones Transport. Avg. (ETF) (BATS:IYT) is hammering on a major breakdown trend line. Every investor should watch this trend line and if it breaks, expect a market correction to take place. It cannot be stressed how important this trend line is. If it holds, the rally holds, if it breaks, expect a 5-10% pull back in the stock market.

Investors see Dow Transportation Index near chart collapse