A Long Way From a New Bull Trend

• Posted by Greg Harmon
• on October 11th, 2011

In August the Dow Jones Industrial Average, measured by the SPDR DJ Industrial Average ETF Trust, $DIA, Broke a two year rising support trendline lower and then began to consolidate. It is still in that range as shown on the weekly chart below. Many are suggesting that the lows for the year have been set but that seems to be a bit premature. Oh, there are positive signs with the Relative Strength Index (RSI) moving higher and about to meet the mid line and the Moving Average Convergence Divergence (MACD) indicator heading towards a positive cross. But neither

SPDR DJ Industrial Average ETF Trust, $DIA

suggests a bullish case as yet. Also the 20 week Simple Moving Average (SMA) has just crossed bearishly lower through the 50 week SMA, with both above the price. It found support at the previous highs from April 2010, marked ‘A’. Positive signs but nothing to get you to jump in the market 100%. Now take a look at the iShares DJ Transportation Average Index Fund, $IYT. It shows the same breakdown into a consolidation channel, and the same bearish SMA cross, but that channel is much lower, sitting on the 200 week SMA. It is also below that high from April shown as ‘A’. This is a much more bearish looking chart, despite both being in a consolidation channel. Dow Theory would suggest that if the $DIA can get over the previous high at ‘B’ then at the very least a

iShares DJ Transportation Average Index Fund, $IYT

downtrend in $IYT would not be confirmed and perhaps we have seen the lows for the year. It could mean an uptrend but that would not be confirmed until the $IYT also clears the ‘B’ level. Until then the latest move has been lower and if $IYT gets below the bear flag, yes bear flag, to 69 then there will be more talk of $DIA heading lower out of its bear flag to confirm a bearish trend lower by moving under 95. There are too many possibilities currently to declare anything other than both sitting bearishly lower waiting for confirmation either way. But my eye, and money are on the downside, continuing the latest move.

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