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Letter 1563

June 17, 2015


Last week the Wall Street Journal called me about Dow Theory. I told them that a non-confirmation in the averages occurs when Industrials and Transports are moving in the same direction but one average hits a new high while the other average lags. But recently, Industrials are just off their highs while the Transports are breaking down to six-month lows. This is divergence, a situation in which the two averages are moving in opposite directions. In all my 60 years of monitoring the stock averages, I’ve never seen a case of such drastic divergence.

 


What does it mean, and what is it telling us? Since it’s never happened before I don’t know what it means, but I can’t believe that it is bullish. The goods may be manufactured (Industrials) but they must be sold and shipped (Transports). The Transports are acting as if the economy is coming to a ... Log in or subscribe to continue reading.


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