7 replies to this topic

[skott]

I'm not an expert in Dow theory at all. Just wondering. The Dow made new highs on 4/25 and 4/26 but the Utilities and Transports did not and are not making new highs today. How long do you wait before you say it is a non confirmation?

[fib_1618]

How long do you wait before you say it is a non confirmation?

There is technically no such thing as a Dow Theory "non confirmation" only buy and sell signals based on three degrees of trend.

Fib

[skott]

that sure flies in the face of what I've always read but shows you what I know and with the short response you gave it's hard to tell what you are saying.

I got the following from wikipedia

4. Stock market averages must confirm each other
In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air.

[fib_1618]

When the performance of the averages diverge, it is a warning that change is in the air.

Divergences, or non conformations, was never the intent of Dow Theory. It's basis is in the direction of price trend of the Industrial and the Transportation averages (in its purest form) for the general reasons given by the Wikipedia author. However, these price trend buy and sell signals are not based on trendline analysis but based on the concurrent horizontal support levels of both of the Dow averages mentioned, which later included the Utilities.

Because of how Dow Theory works, buy and sell signals given are acknowledged in reverse order - long term - first, intermediate term - second, short term - third. Longer term, we have been on a Dow Theory buy signal since 2003 when the June 2002 reaction highs were taken out to the upside (in which I posted here on the old FF board), and we haven't been close to a sell signal since that time.

Fib

[.Blizzard]

http://stockcharts.com/c-sc/sc?s=$TRAN:$INDU&p=D&b=1&g=0&i=p49586551061&r=7726.png

[skott]

thanks blizzard.

I was not asking anyone what the intent of Dow Theory was and I didn't say "do we have a Dow theory Non confirmation". I never used that phrase. What I was asking was given the premise of Dow theory that the averages are supposed to move together when do you consider one of the averages to have failed to confirm the move in the Industrials. That was my question. I guess the answer, if there is one, is simply the phrase that came from wikipedia's explanation...... The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air. At this point it's only been days but something to keep your eye on I suppose.

[fib_1618]

When the performance of the averages diverge, it is a warning that change is in the air.

Again, this is an incorrect interpretation of classic Dow Theory techniques, but if you want to follow the guidelines of an unknown author(s), where anyone can post anything by just signing in, OK, fine, go with it.

But be warned...these so called divergences between the industrials and the transports has happened no less than 3 times over the last 4 years, and the market went on to make higher highs in spite of this. Because of this, you must question the validity of the statement or at least rectify the error given.

Fib

[da_cheif]

that sure flies in the face of what I've always read but shows you what I know and with the short response you gave it's hard to tell what you are saying.

I got the following from wikipedia

4. Stock market averages must confirm each other
In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air.

.....toss all that into the scrap heep of history......