Sunday, August 21, 2016

Warning of change is in the air

Warning of change is in the air

Charles Dow, founder of the Wall Street Journal and the Dow Jones & Company, said that if the industrial and transportation indices didn't bot rally a new bull market couldn't be unfolding. 

The Dow Transportation index topped in December 2014 and is currently way below this top, while the Dow Industrial index is at new all-time highs. The divergent of the two indices is a warning that change is in the air. 

The logic behind Charles Dow's assumption was that if manufactures profits are raising, then they are producing more and if follows they need to ship more products to the consumers. So the two indices should both move in the same direction and make new highs together. 

As can be seen from the chart above, the DJT topped already in December 2014 and has been in a downtrend ever since. It will take a break above 8,358 to break this series of lower lows and lower highs. 

While this Dow signal isn't a timing tool it's a warning that change is in the air. 

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