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Dow's 52 week highs not confirmed |
The wise man sees in the misfortune of
others what he should avoid. — Marcus Aurelius
121-80 AD, Roman Emperor, Philosopher
The Dow has gone on to put in a series of
new 52 week highs, something that has eluded both the transports and
the utilities. We personally do not place too much emphasis on the Dow
Theory which focuses on the transports, we. However, to do place quite
a bit of weight on the utilities as they generally lead both the
industrials and the transports. At the very least the Utilities should
have put in one new 52 week high and more importantly they should have
done it before the industrials and or the transports. As both the
transports and the utilities have not put in new highs we have what
amounts to a double non confirmation signal. This suggests that at the
odds of the Dow mounting a strong to decent correction are pretty
high.
If we examine the 20 stocks that make up
this average we find that at least 10 of 20 stocks have not put in new
highs. The stocks are BNI, AMR, LUV, UNP, CAL, EXPD, GMT, JBLU, NSC,
and OSG. The index is therefore, being carried higher by only 10
stocks.
Finally, in the early stages of the rally
total volume traded surged to and past the 7 billion mark several
times but not one single high took place on even 7 billion shares of
volume. In fact, since the 17th of Sept total volume on the NYSE has
not even once reached the 7 billion mark.
The 3 charts clearly illustrate the
divergence between the Dow industrials, the Dow transports and
utilities; the Dow has put in a series of new 52 week highs while the
transports and utilities are struggling to get there. Prudence and
caution are warranted now and traders should think twice before
jumping into the markets.
The young man knows the rules, but the
old man knows the exceptions. —Oliver Wendell Holmes
