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Friday, January 21, 2011

Friday Updates, Dow Theory, non-confirmation???

The difference between the Russell and the SPX is like night and day, the RUT is barely off of its lows from yesterday and no where close to back-testing its channel line. The squiggles also look more like a 4th wave, consolidating in a tight range.
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The SPX ran up as expected and back-tested the channel line, in order to keep the 2nd wave up on the table the SPX needs to start selling off this morning, other-wise odds increase that the SPX starts making new highs, invalidating the count. With today being OPEX, sharp and sudden moves are the norm.
Here is something we do not see everyday, a non-confirmation on the Dow theory. While the Dow is making new highs today, the Transports are way down, completing a full five wave impulse, and not making higher highs. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air. If the Transports do not make higher highs, this becomes a very bearish scenario.


  1. Interesting comparisons. Looks like Dow might want to go higher, possibly SPX too after a triangle. But rally higher for Russell and Transports might be a B wave. Perhaps those calling this a top need to wait a week or two longer.

  2. Also possible that the TRANS and the RUT already have topped, during major trend changes it is not uncommon for different indexes to top separately.