Both the Dow and the Transportations made a new intermediate LOW in June, and like we predicted, a new bear market was highly unlikely as both averages went on to confirm a new cycle low. It was a very quick intermediate break from the bull market ... A counter-trend. Bear markets are more characterized by sharp divergences in the indexes - where one makes a new high not confirmed by another, followed by one making a new low not confirmed by the other (and so forth). Thus, we speculated that it would be a good time to start buying the dips, and perhaps selling some rallies (or even take a free trade) if you had enough profit.
Since June, the Dow has been making higher highs, and the transports have been basically trading in a range, but have NOT made a new low. This is fundamentally bullish, but lots of caution is still warranted, because given the nature of the non-confirmation, some large sell-offs from the Dow's lofty levels are still possible in the mean time.
Just because we can "see" what's coming, doesn't mean we should throw caution to the wind. Our seeing is not crystal - it's general at best. So our idea still stands: buy on weakness, and take profits when you have it.
#1 So with that ... even a close at 13,000 on the Dow would not be bearish. It would in fact be perfectly normal.
#2 a close below 13,000 would be short-term bearish.
#3 if the Transportation index closes below 4,847 and the dow closes below 13,000 - the bears will increase quite a bit
#4 if the transportation index closes below 4,847 and the Dow closes below 12,101.46 ... LOOK OUT
None of those scenarios except #1 look likely from our viewpoint. See the thing is, we are actually on our way out of a long bear market that started in 2008, and there is still a lot of disbelief in the current 4-year rally (for good reason, I might add). It takes some balls to invest these days, that's for sure!
