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Sevens Report: Q1 Stock Rally Shows Classic Dow Theory ‘Bull Trap’

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Transports’ weakness undermines Industrials’ record highs

Decoding Modern Bull Traps: A Dow Theory Perspective on Market Sentiment and False Signals

The Sevens Report said the Dow’s record-setting first-quarter rally fits the mold of a classic “bull trap” under Dow Theory. While the Dow Jones Industrial Average surged to new highs, the Dow Jones Transportation Average remained negative year-to-date—a divergence Charles Dow viewed as a warning of waning economic momentum.

The lack of confirmation from transports, which track logistics and shipping demand, suggests that market optimism may be misplaced. Sevens cautioned that without both averages advancing in tandem, the rally risks unraveling.

Also, click here to view the full article on Ainvest.com published on September 19th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Sevens Report Flags ‘Bull Trap’ in Stocks Under Dow Theory

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Transports’ weakness signals risk despite record highs

Charles Dow would describe this market as a ’bull trap’ says this analyst

The Sevens Report warned Friday that the U.S. stock rally fits the definition of a “bull trap” under Dow Theory. While the Dow Industrials have hit new highs, the Dow Transports remain negative year-to-date, flashing a bearish divergence.

The note cited two key principles: Confirmation and Trend Reversals. Both indexes must rise together to confirm expansion, but transports’ weakness suggests pressure in travel, logistics, and freight.

Sevens emphasized that despite four of five major equity benchmarks hitting records, Dow Theory would still label the advance a technical bull trap.

Also, click here to view the full investing.com article on Yahoo Finance published on September 19th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Technical Update: Is This Another Bull Trap?

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What’s in Today’s Report:

  • Technical Update:  Is This Another Bull Trap?
  • EIA Analysis and Oil Market Update

Futures are flat following a quiet night and as solid CSCO earnings are helping stocks hold yesterdays’ gains.

CSCO beat estimates and raised guidance and the stock is up 4% pre-market and that’s helping broader sentiment.

Economically, the only notable number was the Chinese Home Price Index (in-line at –1.5%).

Today focus will remain on economic data and the key reports are (in order of importance):  Philly Fed (E: -7.2), PPI (E: 0.4%m/m, 5.5% y/y), Jobless Claims (E: 200K) and Housing Starts (E: 1.365M).  As has been the case, solid data that implies a “No Landing’ scenario should support stocks, as long as yields don’t spike too much.

We also have several Fed speakers today including Mester (8:45 a.m. ET), Bullard (1:30 p.m. ET) and Cook (4:00 p.m. ET) although they shouldn’t move markets.