Tuesday, August 2, 2011

Dow Theory sell signal on horizon

Monday morning’s stunning reversal, from a triple-digit gain at the open to a double-digit loss, is discouraging not just because it indicates that the market faces more challenges than just the political paralysis in Washington. It also puts a possible Dow Theory sell signal back on the horizon.

The crucial levels to watch, according to Jack Schannep, editor of TheDowTheory.com, are the June lows for both the Dow Jones Industrial Average DJIA and the Dow Jones Transportation Average DJT — at 11,897.27 and 5,060.59, respectively.

If both averages fall below these levels, it would be quite bearish according to the Dow Theory — especially since it would come on the heels of what Dow Theorists refer to as a non-confirmation, because in early July only one of these two averages was able to surpass their April highs.

We’re not there yet, so Dow Theorists remind us not to jump the gun. But the Industrials are now only 1.7% away, and the Transports 2.2% away — a lot closer than where they were at this morning’s opening, and close enough to make the bulls sweat.

-Mark Hulbert

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