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Created on: 2/11/2020 9:56:35 PM Last Update: 2/12/2020 12:18:46 PM Posted by: RTT
WARNING: This entry is 2284 days old. It may contain broken links, out-dated or misleading content. Please read on with caution.
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Dow theory warning from the Utilities Index
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 Charles Dow died in 1902, and the investors should thank him for his ever lasting Dow Theory Analysis.
Carrying on this blog theme looking at the Utility stocks. Previous post.
Dow Jones Utility index could trade like the FANGs
Formula for when the Great Stock Market Rally ends
You can learn about Dow Theory here
This post is concerned with the 4th tenet.
Stock market averages must confirm each other
In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrial's could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship their output to market, the railroads. 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.
The above is correct in saying the transports should confirm the industrial index, also the utility index ideally should not out perform the transports, this is because the utility index is considered a safe harbor in times of great risk.
If the utilities out perform transports and/or industrial's then the smart money favor safety which indicates they favor water or electric dividend paying companies over trucking, rail road, consumer, technology or financial companies.
This is major sector rotation which signals great risk in the wider market is upon us or very nearly upon us.
The chart below considered the performance of the Dow Utilities Index vs Dow Transports Index next to previous Dow Industrial major market tops. Conclusion is in black text. Click image to enlarge.
Click for popup. Clear your browser cache if image is not showing.
This Charles Dow quote suits the modern day passive investing theme (ie ETFs gone crazy, for more go here to Mike Green)
NOTE: Posts here are the lite version, more depth on each subject can be found via our RTT Plus membership.
Changes in the world is the source of all market moves, to catch and ride the change we believe a combination
of Gann Angles,
Cycles,
Wyckoff and
Ney logic
is the best way to ride the change, after all these methods have been used successfully for 70+ years.
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NOTE: readtheticker.com does allow users to load objects and text on charts, however some annotations are by a free third party image tool named Paint.net
Investing Quote...
.."After exhaustive researches and investigations of the known sciences, I discovered that the Law of Vibration enabled me to accurately determine the exact points to which stocks or commodities should rise and fall within a given time. The working out of this law determines the cause and predicts the effect long before the Street is aware either."..
William D Gann
.."It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong"..
George Soros
..“I buy on the assumption they could close the market the next day and not reopen it for five years” and “Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.”..
Warren Buffet
..“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.”..
Bernard Baruch
.."What greater wealth is there than to own your own life and spend it on growing"..
Ayn Rand
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We at readtheticker.com hold the view that a mix of stock chart technical analysis, Richard Wyckoff, William Gann and Jim Hurst methods plus market fundamentals allows the investor to formulate a very sound market opinion. These attributes are mutually inclusive and must be weighted equally before investing or trading in any Stock, ETF, Currency, Bond, Commodity, CFD or Mutual Fund
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