The stocks in the chart above have the highest total Twitter Intensity scores. Below are the Monthly scores.
When the Dow Jones Industrial Average (DJIA) is making new highs and the Dow Jones Transportation Average (DJTA) follows to new highs as well you often seen news reports exclaiming a “Dow Theory Buy Signal”. If you use those reports to make investment decisions you’re being misled by a writer who doesn’t understand Dow Theory. There are no buy signals or sell signals in Dow Theory that indicate a specific date where you should go long or short. Robert Rhea in his book “The Dow Theory” went so far as to warn about buying or selling just after a confirmation of a trend change due to the risk of an abrupt correction near those points. Whenever prices have pushed through into new low ground in bear markets or to new highs in bull markets, it is usually safe to assume the primary direction will be maintained for a considerable time; but every trader should remember that from such new peaks or valleys secondary reactions can occur with amazing rapidity. (emphasis
In part 1 of our Dow Theory primer we explained that Dow Theory is a study of stock market price and volume that attempts to identify the prevailing trend of the market and warn of possible changes in that trend. In part 2 we explained how to identify Dow Theory movements. This post will focus on the trend of the market and possible changes in the trend. In order to identify a long term trend, confirm a trend, or warn of a possible change in trend Dow Theory requires the use of closing prices for both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA). Both averages must move together in the same direction to provide confirmation of a trend. When the movement of the two averages conflict they warn of a possible change in trend. When the market is in a primary bullish trend both DJIA and DJTA move together to consistently make higher closing highs and higher closing lows. Dow Theory calls the higher
In part 1 of our Dow Theory primer we explained that Dow Theory is a study of stock market price and volume that attempts to identify the prevailing trend of the market and warn of possible changes in that trend. The theory uses the movement of price of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) with their associated volume to identify major trends. This post will focus on the movements and how to identify them. Dow Theory Movements Dow Theory recognizes three movements in the price of DJIA and DJTA. Those movements are: 1) Daily Fluctuations, 2) Secondary Reactions, and 3) Primary Trends. Daily Fluctuations are the smallest duration moves in price and are irrelevant unless combined with other elements of the theory such as secondary reactions or lines. An investor looking at the day to day movement in price does not have enough information to determine the probable future direction of the market. Daily fluctuations are easy to spot. They are one day
I’ve seen a lot of blog posts about Dow Theory lately. Unfortunately, many of them have had a lot of misinformation about what Dow Theory is and how it should be applied to the markets. Like all types of technical analysis Dow Theory is simple in concept, but difficult in practice. In an effort to help you understand the basics I’ll do some posts about Dow Theory over the next several days that explain it and the basic rules of how it works. Today we’ll start with an overview. What is Dow Theory? In the simplest terms, Dow Theory is a study of stock market price and volume that attempts to identify the prevailing trend of the market and warn of possible changes in that trend. William Peter Hamilton formalized the theory proposed by Charles H. Dow in a book titled “The Stock Market Barometer”. He considered the theory to be a general guide to the probable outcomes in the stock market based on the combined movements of the Dow
Over the past few days the Dow Jones Transportation Average (DJTA) cleared a long term divergence it had painted with the Dow Jones Industrial Average (DJIA) going back to July of 2011. Clearing that level was one of the hurdles that Dow Theory needed to clear before creating what many call a “buy signal”. In reality, there are no actual buy signals in Dow Theory, instead Dow Theory merely confirms a long term trend or warns of an possible change of trend. It does so by following the price and volume action of DJIA and DJTA. When both averages move and break above previous secondary highs together Dow Theory states that the market is in a primary uptrend. During a primary uptrend traders should be buying dips and accumulating stocks. During the first part of 2012 the two averages painted what is call a Dow Theory Line where prices traded in a narrow range for several weeks. The top of the lines for both DJIA and DJTA created secondary highs
Keep an eye on the Dow Jones Transportation index (DJTA) and the Dow Jones Industrial index (DJIA) over the next few weeks. Both of them have now recovered to the top of the Dow Theory Line that they painted at the first of the year. The decline below the line in mid May created a secondary low point (in early June). This gives a line in the sand on the down side that both indexes must hold. Any failure would create what many technicians call a Dow Theory Sell Signal, but in true Dow Theory it will merely represent confirmation that the primary trend has changed from bullish to bearish. With both indexes close to the top of the line we’re at a point that a small move higher will serve as confirmation that the trend is still up. The transports need to clear 5370 on a closing basis, while the industrials need to close above 13610. There is a very long term non confirmation between the industrials and the
In May of this year the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) both broke down from a Dow Theory Line. When that line broke it signaled that the following low would be of at least secondary importance (or possibly signal a primary trend change). In early June both DJIA and DJTA put in secondary lows. Subsequent to that low the industrials rallied back above their last secondary high point while the transports traded in a sideways range without going on to new highs. Several times during that range DJTA got close to breaking its secondary low even though DJIA continued higher. This created a Dow Theory non confirmation that was a warning that a top could be in progress. We are now at a point where the transportation average is hovering above its last secondary low and the industrial average has broken down sharply. This makes the 4847 level on DJTA critical support. Any break of 4847 on a closing basis will put in
We’re starting to see some rotation out of small caps, technology, and the general market into big cap stocks. At this point we’re not sure if it is merely profit taking and re-balancing of portfolios or if it represents distribution and a flight to safety. It is one of the things we’ll be watching closely over the next few weeks. If the trend continues it will be one more sign that the current rally is loosing steam. Add that to the Dow Jones Transports trying to break critical support and we should start seeing the market rounding out a top. Of course, if the transports hold, as they did today, and the short term rotation to big caps turns out to be re-balancing then the market is simply setting up for the next run higher. Keep an eye on RUT, NDX, and DJIA over the next few weeks as they will provide clues to the next market move.
The Dow Jones Transportation average (DJTA) has fallen once again to a critical support level. This is in contrast to the Dow Jones Industrial average (DJIA) hovering near its 52 week highs. This is not something we generally see in a healthy market. It is one of the few negative indicators we are watching for signs of the next major move in the market. When market rallies get tired and begin to form a top they usually do so from a position where almost every indicator we follow is positive. When an intermediate term high is forming, divergences between major market indexes, momentum indicators, and breadth indicators start to show up. The transports are getting close to painting a major divergence from the other market indexes. This often signals weakness in the general economy as fewer raw materials, supplies, and finished goods are moving. Keep an eye on the transports over the next week or two. If it breaks below the 4850 to 4900 level it will be one