DOW THEORY

Hi Folks,

One of the principals of the "Dow Theory" is that the stock market averages should move in tandem in order for the trend to stay intact. The idea is that if the industrials are doing well then the transportation stocks that ship their goods should also be performing well. According to the theory, the transportion index generally leads the other indexes. If you buy into this theory then there is a divergence occurring right now. Coincidentally it occurred about the same date I changed my bias from buying the dips to selling the rallies. I do not follow the Dow Theory personally but it is worth noting. While the Dow Industrials have been climbing since the beginning of the month the transports have been selling off.

The market is still looking like it wants to pull back some more. I am looking for the market to hit 132 - 133 in terms of SPY short term. The indicators that have been successful for me still show the general trend is still up, just a short term bearish bias. We are extended above the moving averages and need to come back and test them.

Thanks and Good Trading,

Tim