Monday, June 18, 2007

Dow Theory, P&F Charts And the Current Market

Below are two P&F Charts of the IYTs (Transports) and the SPYs (S&P 500). Notice something very important. As the SPYs were making new highs, the transports weren't. Standard Dow theory states the transports and the major indexes have to confirm each other. The underlying theory is deceptively simple. If business prospects are increasing, businesses will increase the amount of transportation they use.

However, the transports are continually bumping into resistance.

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