It's funny how the relationship between the Dow Jones Industrials and the Dow Jones Transportation indexes can mirror what I'm already seeing.
You see, I do quite a bit of research even though my posts are short. After I've completed my research, I look at the Dow relationship and I am often surprised that this one index relationship mirrors what I've been concluding based on my research. It could be confirmation bias, but then again, I've made some 'surprisingly' accurate calls. This isn't an accident, nor am I some sort of magician. It all comes back to Dow Theory.
Many headlines are questioning whether the European Union will survive now that Italy has voted "No". At the same time, even though the US economy seems to be improving, depending on who you ask the situation is either dire or promising. That's a huge gap, and I think that gap is being reflected in the whipsaw markets we've been seeing over the past few years. The fact that ultimately, the primary Trend, which was set in 2009 has not fundamentally changed. The primary trend is still up. That is a fact.
The US is also the best place to park money currently. Corporate share buy back plans have helped to buoy Share prices and have also effectively absorbed a lot of inflation. Plus, interest rates are so low that stocks are just a better option than bonds for yield right now.
Overall, it seems to me that there is a cautious yet optimistic feeling to the markets, and this happens to be the picture being painted by the DJI/DJT relationship. I do expect the transportation index to make new all time highs this week. But I'm not moving an inch until they do. This ensures that I invest based on a system i trust rather than on fleeting emotions.
If the transportations fall away from their 'almost' all time highs without making them, you can expect a nice correction in the broader markets as well, which may produce an excellent buying opportunity because, remember, the primary trend will still be UP even if the markets correct in this fashion. It's REALLY important to remember this! The only way we will be in an extreme bear market is if the Transportation indexes start making new all time highs that aren't confirmed by the Industrial index.
Either way, we will be positioned to get in when the getting is good.
What I'll be looking for in this scenario is some lower support levels for the Dow as an entry point. I'll specifically be looking for a new intermediate low in both indexes. If the new intermediate lows both indexes are lower than the previous intermediate lows of 15973.84 on the Dow industrial Index and 6689.06 on the Transportation index, that'll be our new entry point. At that point, the intermediate trend will change from down to up, and not a moment sooner.
