Just as Republicans and Democrats continue to march in opposite directions, so do the two Dow Jones Averages.
You’ll remember I wrote about the Dow Jones Industrial Average and the Dow Jones Transport Average back in June. I want to give you another update today because these two continue to move in opposite directions… and it’s concernrning.
Take a look…
The most widely followed “Dow” is the Dow Jones Industrial Average (DJIA). You’ll see the daily closing prices of this average in green. The other, lesser-known Dow, is the Dow Jones Transportation Average (DJTA) – shown in red above.
Usually, when the economy is stable, the two averages move in the same direction. They either go up together in good times or down together in bad times (to be simplistic). But when change is in the air, the two averages diverge. And I’ve been watching exactly this happen since January.
Over the last seven months the DJIA has gained 4.8% while the Transportation Average has lost 2.4%. That’s an absolute difference of more than 7%. This divergence is violating one of the fundamental tenets of the Dow Theory – that is the two averages must “confirm each other” for the current market trend to be trusted.
With the Dows in disagreement, there is a good chance we’re about to see a major shift in the prevailing trend. This is not the time to bullish. Instead, be careful!
If you haven’t done so already read the Survive & Prosper issue on “Higher Taxes or Cut Taxes – Which would you prefer?”