Transports low - a warning from dow theory

A Potential Warning Sign from Dow Theory, March 22, 2017

An excerpt from today’s Sevens Report (the Sevens Report is everything you need to know about the markets, in your inbox by 7AM in 7 minutes or less).

The price action this week has made us more cautious on this market from a technical standpoint (we’ve been cautiously positive fundamentally for some time). And the reason for the caution has to due with Dow Theory.

The Dow Transports are poised to print a bearish “lower low” on the weekly chart (depending on how things play out through Friday’s close). In a nutshell, the Transports plunged through their most-recent weekly closing low at 9043.90 yesterday. The “lower low” would be the first signal of the four needed to turn our interpretation of Dow Theory bearish.

As a reminder, the last time we published that Dow Theory had turned bearish was in July 2015, just weeks be-fore the Dow Industrials and S&P 500 fell 1000 points and 100 points, respectively, in the opening minutes of trade due to Chinese currency turmoil. While Dow Theory was bearish, stocks fell nearly 15% before recovering after the election and turning back bullish. Our signals did miss out on a modest 3% upside gain (most of which took place in the back half of election week, before the signal was offered).

Bottom line, Dow Theory remains positive for now; however, the Transports did just flash a warn-ing sign. And while we still believe the path of least resistance, based on technicals, is higher for now, we are monitoring the technical situation carefully to keep you informed of another potential period of volatility.

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