Recently, some Dow theorists have suggested that a classic Dow Theory sell signal has already been generated. Let's take a look at the charts for ourselves and see if that is in fact true. We'll begin with the daily chart of the Dow Jones Industrial Average.
As you can see, the downtrend from late April broke convincingly below the previous low in February, so the first half of the sell signal criteria has been met. Now let's look at the transports.
Here is where there is debate among chart watchers. Some believe that the downtrend from May ended in early June. Consequently, the move down to a new low in late June would constitute a close below a previous low, and the classic Dow Theory sell signal would be confirmed. We would argue that the short-lived reaction from June 8 to June 21 was not in fact a new uptrend, but rather a failed attempt at one. In our view, the downtrend from May is still in progress and has yet to break below the February low, so no sell signal has been generated. Our current forecast certainly does call for an eventual long-term sell signal as defined by Dow Theory, but it has not happened yet according to our read of the charts.
If this isn't a perfect example of how technical analysis is both science and art, we don't know what is. Give a chart to one hundred different analysts and you are likely to receive one hundred different analyses. As always, the key to long-term success is to develop your own methods and subsequently learn to trust your own analysis.Disclosure: No positions