Has The Dow Theory Lost Its Relevance: Stock Market Ignored It And Rallied To New Highs

A stop sign is a gift for you to learn that moving in the same direction won't take you any place new. - Rex Steven Sikes

The transports topped out in November of 2014, and according to the Dow theory this is a big negative;the Dow industrials should have followed suit. Instead, the Dow soared higher paying no heed to this theory proving to a large degree that this theory has lost its value. After all, it is a theory and the definition of a theory is a supposition or a system of ideas intended to explain something, especially one based on general principles independent of the thing to be explained.

That is why way back in 2006 we offered a Dow theory Alternative that has proved to be far more accurate and reliable than the Dow theory.Just to let this sink in, the transports topped out almost two years ago and instead of trending lower the markets have surged to new highs. If you look at the above chart, the Transports appear to be finally gathering momentum and to break out. In the Dow theory alternative, we stated it was the Utilities that lead the way as opposed to the Dow transports, well let's see if that holds true. 

In the chart above, the utilities topped after the Dow transports, let out some steam and then soared to new highs. Even though the correction appeared to be strong, the Dow utilities held above the main uptrend line.Right off the bat, we can see that the Dow utilities are a better barometer of what one should expect from the markets.The Utilities topped in Feb of 2015, and after that the Dow trended sideways before correcting, illustrating that they follow the lead of the Utilities and not the Dow transports.

The Dow utilities bottom towards the end of August 2015 and rallied until Nov of 2015 before pulling back again. The Dow followed in the utilities footsteps. It bottomed in Jan of 2016, while the utilities bottomed on Dec of 2015; once again leading the way.After that utilities rallied until July 2016 before pulling back. 

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