Time to post a quick update on Dow Theory divergence.
The Transports led the Dow on the downside by about 5 months: Transports reached their high in January, while the Dow peaked in May.
Following the late August lows, Transports have bounced back and closed above their 34-day moving average. The Dow, however, has yet to surpass its 34-day moving average. Perhaps Transports are leading the way this time, and the Dow will follow.
False alarms do happen in Dow Theory Divergence. Note below the weekly chart. The Dow wobbled its way through an uptrend starting in September 2012, while the Transports remained flat. The Transports ultimately joined the uptrend.
We will be looking for the Dow to catch-up this time and surpass its 34-day moving average. By then, perhaps both indicators will be resuming at least a short-term uptrend.
August 12, 2015 Dow Theory Divergence Update
Last time we wrote on the Dow Theory divergence, the Dow was near its May top while Transports languished.
On the updated chart below, Transports have bounced from support near 8000, following retracement action in the Dow. Could this suggest the resolution of the divergence and presage a climb in both averages?
For those interested in exploring Transports further, Baseline Analytics has run its Volume Surge Report against transportation industry leaders. Criteria was to include only those Transports trading above their 200-day moving average. The list is sorted by "volume surge," showing yesterday's volume as a multiple of the 50-day average volume. We also removed Transports that lost ground during yesterday's 1.3% gain in the S&P 500.
Click here for today's free report. Subscribers to Baseline Analytics receive similar targeted stock lists regularly to identify timely trading and investment opportunities.