I’m pleased that Dow Theory is still remembered, and quoted, although I think not accurately in this case, in the report from Market Watch.
The third tenet of Dow Theory is:
‘Both averages must confirm. This is perhaps the most important tenet of the Dow Theory. The movements of both the industrials and transports should always be considered together. Conclusions based on the movement of one average, unconfirmed by the other are likely to be misleading.’
In Dow’s day Railroad Stocks formed a large and important component of the stocks listed on the NYSE. The Industrial index represented the growing manufacturing segment, whilst the Railroad Index (subsequently the Transportation Index) reflected the health of the agriculture segment of the US economy.
Today the Transportation Index is less dominated by such stocks and the index is therefore less relevant as a barometer of the economy.
In my opinion the ASX 200 formed an uptrend on the 4/7/12 when a new high was formed, and the uptrend remains intact 2 months later. Despite some lingering global concerns, and many analysts calling an end to the Mining Boom, the XJO continues to rise, suggesting that investment money is returning to the market, with value oriented fund managers picking up the shares of oversold companies at present prices
Categories: Trading opinion