Dow Theory Update

The Dow Jones Industrial Average (DJIA) closed about 10 points below its last secondary high point today. The transports (DJTA) are still about 4% away from their last secondary high. If both indexes can close above those levels in the coming weeks the bear will be dead. If the bear market is going to continue I’d guess we’ll see a non-confirmation of the bear that looks something like DJIA closing above 17,918, but not reaching new highs. While at the same time DJTA won’t be able to make it above 8302. Keep an eye on DJIA and DJTA over the next few weeks because they’ll give clues to the long term trend.

Another chart I’ve been watching is the S&P 500 Index (SPX) daily. It’s rallied back to its downtrend line. If it can close above that level for a few days then I suspect that we’re going on to new all time highs.

Looking at a weekly chart of SPX, one could argue that we’re merely painting a bull flag and correcting mostly by time (rather than by price).

Same argument could be made on the monthly SPX chart.

Conclusion

The next few weeks should tell us if the bear is dead or alive. All we have to do is watch the trend channel on SPX and the last secondary highs on DJIA and DJTA.