Tuesday, September 21, 2010

Marketwatch: Dow Theory Buy Signal Triggers*

For those old school market folks, it appears a Dow Theory buy signal triggered yesterday*.  So for those keeping track, in the span of 4 weeks we're going from the Hindenberg Omen to a Dow Theory buy signal.  Bipolar you say?

*depending on your interpretation

(please note this story was written as of yesterday afternoon so be aware of that context)

Via Marketwatch:

  • Not to be left out of today’s burst of optimism on Wall Street, the venerable Dow Theory is close to issuing a buy signal.  That’s because, assuming the stock market holds onto its mid-day gains, both the Dow Jones Industrial Average and the S&P 500 index ill close above their rally highs set on Aug. 9.
  • If they do, that will constitute a buy signal according to TheDowTheory.com, edited by Jack Schannep. The crucial levels to watch, on his interpretation, are 10,698.75 for the Industrials and 1,127.59 for the S&P 500.
  • Traditionalists might wonder what the S&P 500 has to do with the Dow Theory, since it traditionally has been based on the action of the two major Dow averages: The Industrials and the Dow Jones Transportation Average. But, according to Schannep’s re-interpretation of the Dow Theory, a Dow Theory buy signal can be triggered whenever two of these three indexes surpass previous significant rally highs.
  • Richard Russell, editor of Dow Theory Letters, adheres to a more strict interpretation of the Dow Theory, and is therefore not quite ready to say that even a short-term buy signal has been generated. That’s because the Dow Transports as of mid-day trading in New York remain about 1% below their early August high (which came in at 4,516.35).

I would assume most Wall Street types still will adhere to the Richard Russell interpretation of Dow Theory ...

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