Yesterday, the Dow Jones Transportation Average (DJTA) closed just 32 points away from its last secondary high. If it had closed above that level it would have signaled, from Dow Theory, that a long term bull market was underway. Currently, Dow Theory sees us in a long term down trend, but with a bullish non-confirmation of the down trend. This is due to the Dow Jones Industrial Average (DJIA) being above its last secondary high, but DJTA failing to surpass its last high.
DJIA is about 6% above its last secondary low. A close below that level would re-confirm that we’re in a long term down trend (that can be expected to last from one year to three). When we look at a one year chart of both indexes (above) the thought that we’re in a long term bear market seems silly. But looking at a two year chart (below) one could argue that DJIA is completing a complex topping pattern, while DJTA is still in a down trend.
So, which is it? A bull or a bear? I don’t know, but the compression between DJIA’s last secondary low and DJTA’s last secondary high indicates we’re close to getting a signal for the long term direction. DJTA above 8110 will signal a bull market. DJIA below 17140 will signal a bear.
In the intermediate term, my core market indicators continue to be slightly cautious. My measures of market quality just won’t move positive, measures of the economy are falling, but measures of trend are strengthening. This leaves the core portfolios with a moderate amount of cash or short positions.
Both long term and intermediate term indicators are giving mixed signals. But, Dow Theory only needs a slight move upwards to signal a long term uptrend or a 6% move to the downside to signal a bear market is still underway.