The transports topped out in November of 2014, and according to the Dow theory this is a big negative; the Dow industrials should have followed suit. Instead, the Dow soared higher paying no heed to this theory proving to a large degree that this argument has lost its value. After all, it is a theory and the definition of a theory is “a supposition or a system of ideas intended to explain something, especially one based on general principles independent of the thing to be explained.”
Dow theory does not work -Better Alternative exists
1. A stop sign is a gift for you to learn that moving in the same direction won’t take you any place new.
Rex Steven Sikes
The Dow theory does not work & Here’s The Proof
The transports topped out in November of 2014, and according to the Dow theory this is a big negative; the Dow
industrials should have followed suit. Instead, the Dow soared higher paying no heed to this theory proving to a
large degree that this argument has lost its value. After all, it is a theory and the definition of a theory is “a
supposition or a system of ideas intended to explain something, especially one based on general principles
independent of the thing to be explained.”
Dow theory does not work -Better Alternative exists
2. That is why way back in 2006 we offered an Alternative that has proved to be far more accurate and reliable than
the Dow theory. Just to let this sink in, the transports topped out almost two years ago and instead of trending lower
the markets have surged to new highs. If you look at the above chart, the Transports appear to be finally gathering
momentum and to break out. In the Dow theory alternative, we stated it was the Utilities that lead the way as
opposed to the Dow transports, well let’s see if that holds true.
3. The Dow theory does not work; Focus On The Alternative Instead
In the chart above, the utilities pulled back after the Dow transports, let out some
steam and then soared to new highs. Even though the correction appeared to be
strong, the Dow utilities held above the main uptrend line. Right off the bat, we
can see that the Dow utilities are a better barometer of what one should expect
from the markets. The Utilities topped in Feb of 2015, and after that, the Dow
trended sideways before correcting, illustrating that they follow the lead of the
Utilities and not the Dow transports.
The Dow utilities bottomed towards the end of August 2015 and rallied until Nov
of 2015 before pulling back again. The Dow followed in the utility footsteps. It
bottomed in Jan of 2016, while the utilities bottomed on Dec of 2015; once again
leading the way. After that utilities rallied until July 2016 before pulling back.
The Dow rallied until Aug of 2016, proving again that the utilities are a better indicator of market direction than the
Dow transports. At this point, it appears that the utilities are building momentum to take off again. If the pattern
holds, then the Dow should follow in its path.
It is also interesting to note that after almost two years of two years of doing nothing, the Dow transports are also
attempting to break out.
Something to keep in mind
Paying attention to what the utilities are doing going forward could prove to be rewarding. Once the Dow utilities
start to trend upwards, it should serve as a strong signal that the Dow is going to follow in its path
4. Impiety. Your irreverence toward my deity. Ambrose Bierce
Dow theory does not work; so what are your options?
The Dow utilities and the Dow industrials both traded to new highs; this means rather than leading the way up the
Dow transports are propelling individuals to draw the wrong conclusion. The Dow Theory ceased to work properly
a long time ago and in the era of hot money, it is having a hard time trying to be relevant. The alternate Dow
Theory that focuses on the utilities is a better option. Thus, maybe it is time to put this 100-year-old theory to rest;
we will let you be the judge.
