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doc

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Reply with quote  #1 

We are in the midst of a nice triangle in the Transports which is integral to Dow Theory and the economy both. We bounced Friday right where we needed to. Will this be a DCB or can we plow back up to the top of the triangle and even bust up through it?

Note the Death Cross of the ema's in July and then in Aug,
you see the Kiss of Death.

Good chart to keep an eye on.

Doc

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doc

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Reply with quote  #2 
1. Death Cross  --July 25th
2. Kiss of Death --Aug 24th
3. Triangle Breakdown -- Sept 5th

Fake out or Breakdown? You decide.

Doc

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doc

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Reply with quote  #3 
In May we had another breakdown of a Transports triangle and it wasn't pretty. Circumstances were different to be sure. Trade safe.

Doc

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doc

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Reply with quote  #4 
Well the one day breakdown turned out to be a fakeout and the very next day the markets took off to the upside and amidst both the ECB and the Fed promising further support, the markets made substantial gains over two weeks with the INDU advancing 550 points and the TRAN advancing up through the previously noted triangle.

Now this week, the INDU has consolidated its gains and given nothing back. But the TRAN has given ALL of its gains back and then some, crashing to new local lows and now set to test the June lows next.

In short, the TRAN is not confirming the INDU new highs, in fact, just the opposite. This is extremely disturbing to me. Things are not as they seem, IMHO.

Doc

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fib_1618

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Reply with quote  #5 
Since the advent of Dow Theory, a lot has changed over the 100 plus years of its inception. Back then we had "industrial" companies that made up the Dow in a country where we did over 95% of all manufacturing. Today's Dow is a shadow of its formal self with technology, food, drug and recreation companies being incorporated to provide a broad representation of today's service oriented economy where industrial manufacturing is probably less than 20% (if that).

So is it reasonable to continue with the idea that an expanding economic base is built primarily on the back of the creation of product and its transport? There will be, of course, differing opinions on the subject to be sure. But does Dow Theory have the same relevance it had back only 20 year ago? Purity wise, probably not. Would we as chartist like to see both indexes moving in tandem with each other? Sure we would. However, the one glaring thing we can see in this longer term comparison chart is that we have truly had a disconnect of sorts between the two indices since the 2007 highs and this could be something different enough to where this kind of analysis may not have the same importance as it has in the past.

Lastly...Dow Theory is a TREND oriented economic theory where if the trend of one index is moving opposite of the other then there is a "non confirmation" of probable economic expansion. As these longer term charts do show, the TREND in both does remain UP, so on a long and intermediate term price scale, we continue to be on a Dow Theory buy signal. Short term, however, we do have some problems, but no sell signal has been generated. That would only come if the Transports close below the early June 2012 lows. So until that happens it's just a simple trading range and really just another distraction to keep the majority from identifying the true path of least resistance.

How about this? What is the technical definition of "capitulation"? And once defined, does this weeks decline meet that definition?

Fib

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mojave

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Reply with quote  #6 
I appreciate the charts Doc!

In addition to Fib's comments, I notice a few things:

1. "Everyone" has been noticing the sickly, lagging transports. The DJTA certainly appears to reflect our collective sentiment on the state of the world markets better than the equity averages.

2. Jason Goepfort (SentimenTrader.com) recently made this comment:
"The DJIA is within a whisper of a 52-week high, but the Dow Jones Transports are more than 8% below its own 52-week high.  That hasn't meant much - going back to 1930, the DJIA showed a higher average return during the next 3 and 6 months following divergences like this than it did when the Transports were also within 0.5% of its own 52-week high."

3. Finally, Mark Hulbert posted on the Transports today:

http://www.marketwatch.com/story/true-meaning-of-dow-transports-weakness-2012-09-25

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