On the daily charts, the Dow made a short term pop above 12837 on June 29th, which was not confirmed by the transportation average. The result was a 2-day sell off. How the sell-off ends will indicate where things will go next.
For a short term investor, that daily divergence before the sell-off was a clear signal to tighten your stop loss and get ready to exit your short term trades. For the long term investor, this was a signal to perhaps unload or significantly reduce your more speculative investments and further prune your shopping list in order to prepare to add to your core holdings.
Since both averages made new intermediate lows, I theorize that we are in a secondary bear market. The length of this trend is unknown, but I will be watching for confirmations and divergences.
One signal I watch for is confirmation of new highs and new lows. Sometime after today, if the Dow makes a second new intermediate low, and forms an inverted V pattern, I want to see the transportation confirm the move. This will signal a potential end to this intermediate bear market trend.
Despite all of the crazy economic news coming out of the white house (you know what it is: labour stats, employment data etc etc), the Dow has more of a floor under it than the transportations, thus there is more upside strength than downside strength at this point. This is just according to the data available at hand ... like I said, I don't care what the news or any other 'doomsday reports" say. This doesn't mean I'm buying, but I am cautiously watching for a reversal pattern to unfold.
Below, the two images give some context to the moves being made in both indexes. I am watching these trends, because this long term weekly indicator has been a good gauge for big moves to the down side and the upside.
The next two images show the daily trends more closely. I am watching this trend for short term reversal patterns to signal potential buying opportunities and shorter term plays.
