Dow Breaks November Lows; Triggers Fresh Dow Theory Sell Signal
Thursday, February 19, 2009 22:03The Dow Jones Industrial Average breached its November low, closing below 7500 for the first time since October 2002.
In only 18 months, the index has given back all of the gains achieved over the previous 5 years.
The chart below shows the index taking out the 2002 lows, but keep in mind that this is a weekly chart. For this to be confirmed, the DJIA needs to close at or below this level on Friday’s closing (week’s end).
Something else caught the eye of market technicians today. As both the Dow Jones Industrial Index and Dow Jones Transportation Index took out the previous lows leading to a new Dow Theory sell signal.
The Dow Theory is one of the oldest technical theories on Wall Street. Developed by Charles Dow in the 1800s, the theory holds that a primary market trend must be confirmed by both the industrial and transportation index. Charles would define a primary bull market as a time when both the Dow Industrials and transportation stocks are making new highs TOGETHER. The opposite is true of a bear market.
The logic behind Dow’s theory is that in a strong economy, the industrials (The maker of the goods) should rise as earnings increased, and the Transports (The shippers of the goods) should rise as well.
Dow Theorists took special notice of todays market action as both of these sister indices (Industrials and Transports) made new lows. The bear is alive and well.
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j man says:
February 20th, 2009 at 5:21 am
The bear is certainly alive. I would be shocked if this were the bottom. We are in the second debt bubble collapse, the first being the great deppression. This is just a repeat, but on a much bigger scale because the numbers are so much bigger. I believe a major crash is still to come. Get your shotguns, canned food and gold while you still can…
Christopher Brack says:
February 20th, 2009 at 8:06 am
Dow Theory hasn’t been any more relevant than the Jones, itself, for DECADES.
But the Stopped Clock IS correct. Based on the fact that, starting in the 30’s and building to climax in this decade, we’ve leveraged ourselves so dramatically that our collectively overextended Credit has DWARFED that of the Roaring 20’s…I’m Calling for The Bear of the Ages.
It says here that we’re going down 80% in the Averages, before all is said and done…from TODAY’S levels.
Christopher Brack says:
February 20th, 2009 at 8:18 am
Addendum: It’s possible, with our Socialist “leadership” attempting to foist the burden of floating Zombie Banks and Zombie Mortgages on us, that we’re about to Go Japanese, and may be finding New Lows in the NASDAQ 20 years, hence…But I’m hopeful that our fundamentally Libertarian and Freedom Loving ways ~ SING it, Brother Rick Santelli! ~ will overcome the Redistribution efforts of the Obamas, the Bushes, and their fellow MarxoFascists…and we’ll actually eventually let The Market do its beautiful, Darwinian, Creative Destruction.
So it’s POSSIBLE this’ll be over soon: as quickly as in 18 months, in fact, which would gel with both The Bear of 1929-1932 ~ 34 months ~ and the Dress Rehearsal of 2000-2002, which went 31 months.
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February 21st, 2009 at 8:54 am
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