By Matthew Kerkhoff
A number of analysts and advisory firms have recently made the case that Dow Theory has issued a sell signal, indicating that the major trend of the market is now down. Let's examine the price action driving these calls to see if we agree with that interpretation.
Mechanically speaking, a traditional Dow Theory sell signal is predicated on three developments: First, the Industrial and Transport averages must undergo a significant correction from new highs. Then, during the subsequent rally, one or both of the averages must fail to recover above their prior highs. Finally, both averages must fall below their prior correction lows.
This sounds relatively straightforward, so what causes the varying degrees of uncertainty regarding whether a signal has been triggered? Typically it comes down to an interpretation of what is deemed "significant." You'll see what I mean momentarily.
Those who contend that Dow Theory has issued a sell signal are ... Log in or subscribe to continue reading.