Dow Theory Predicts Correction

Dow Theory Predicts
Correction
By www.ProfitableInvestingTips.com

http://profitableinvestingtips.com/stock-investing/dow-theory-predicts-correction
A hundred year old stock market
predictor has investors worried.

The Wall Street Journal reports
that Dow Theory is indicating a
market correction.

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It has to do with surging industrials
and lagging transportation stocks.

Warning signals from a century-old
stock-market analysis tool known as
Dow Theory are sparking debate
about whether stocks are headed for
a fall.

Dow Theory holds that any lasting
rally to new highs in the Dow Jones
Industrial Average must be
accompanied by a new high in the
Dow Jones Transportation Average-
the 20-stock index that tracks some of
the largest U.S. airlines, railroads
and trucking companies.

When the transport average lags, it
can presage broader stock declines.

The Dow transports are sitting on a
6.9% decline for the year.

They haven’t hit an all-time high
since Dec. 29.

Delta Air Lines Inc. has dropped 13%,
United Parcel Service Inc. 9.6% and
railroad CSX Corp. 5%.

When business and industry are
humming along they should be
shipping products.

The fact that transportation stocks are
slumping indicates that perhaps the
industrials are inflated.

Thus the Dow Theory predicts a
correction.

How Long Can a Rally
Last (without a
correction)?

While Dow Theory predicts a
correction so does common sense.

The market has gone up for four years
with a ten percent pullback, the
standard definition of a correction.

Market Watch gives their opinion
about June swoons as opposed to
how Dow Theory predicts correction.

In 119 years that the Dow Jones
Industrial Average DJIA,
+1.44% has been calculated, the Dow
has risen in 63 Junes (53%) and
fallen in 56.

In the positive Junes the gains
averaged 4.3%; in negative Junes
declines averaged 3.4%.

The odds narrow a tad if just the
“modern” era is considered.

In the 69 Junes since the end of
World War II, the Dow rose in 36 of
them (52%) and fell in 33.

The average gain in up years was
3.2% and the average decline in
down years was 2.6%.

Despite the time honored advice to
sell in May and go away, it turns out
that stocks more often go up than
down in May.

So a weakening market right now is
not the norm.

Long Overdue

CNN Money says that the stock
market is long overdue for a big
drop.

It has been 925 trading days since the
stock market had a correction,
according to a recent Deutsche Bank
(DB) report.

That’s more than double the average
length of time it usually takes.

A correction is a 10% or greater
decline in the stock market in a short
period of time.

The average rally period without a
correction is 357 trading days,
according to a Deutsche Bank
analysis of stock market moves since
the 1950s.

The Deutsche Bank strategists aren’t
quite ready to say a correction is
imminent, but they add their voices
to those saying: Beware!

People are looking at various
predictors to decide is the market is
about to hiccup or not.

While the Dow Theory predicts a
correction so does the law of averages.

Dow Theory Predicts Correction

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Dow Theory Predicts Correction