Not So Fast to that Dow Theory Confirmation
- Posted by Greg Harmon
- on July 12th, 2013
The Dow Jones Industrial Average ($DJIA, $DIA) printed a new all-time closing high Thursday. Whether you measure your moves off of intraday highs or on a closing basis, this will inevitably bring to mind Dow Theory for a Technical Analyst. It is like Jelly brings to mind Donut in word association for a normal America, or Beer leads to Pretzel for Germans (I may have made that one up). It is a time tested Theory that requires the Transportation Index ($DJT, $IYT) to make a new high after the Industrials have made a new high to confirm a trend change higher. The chart of the Transports below shows the Transports closed less that 100 points, or less that 1.5%, from the all-time high at 6568.41 (intraday). So it is certainly within striking distance. But the triangles on the chart suggest that there may be some noise at that confirmation or shortly afterwards. The triangles represent two variations of the bearish Shark Harmonic, with Potential Reversal Zones (PRZ) at
6516 on the lower end and 6627 on the upper end. Upon completion of the pattern the bearish part is a reversal with an Initial Price Objective (IPO) of 6369 from the upper yellow level and 6333 from the lower pink Shark. In fact the Industrials are showing the same pattern and could potentially not reach the intraday all-time high at 15542.40. The PRZ for the lower Shark Harmonic on the Industrials is to 15463, a level it went through and then dropped below today. The IPO on this reversal is a level of 15164. A move higher Friday also does not get the Industrials into the safety zone as the higher Shark PRZ is just above at 15633. A reversal there would carry an IPO of 15220. I have no insight as to whether the Dow Theory
or Harmonic patterns should take precedence. Both are possible and both could fail. But it shows that the are at least two sides to the market view going forward. My perspective (on the SPY Sentiment tab updated weekly) calls for Upward Price Action in the Intermediate Downtrend in the Long Term Uptrend, and given no large move lower Friday will likely be updated this weekend to Uptrend Continues. But no one thinks this will be a straight line higher.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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