This week's new meme: Dow Theory

The ol' Dow Theory has suddenly popped into people's heads this week.

Here's WSJ Marketbeat: Don't ignore the warning signal coming from the transports! Woooo! Scary!


Here's BI: Woooo! Let's post an image of a transsexual and make a witty remark! Oh also be teh scaredz! Woooo!

But then, Bespoke points out there's no correlation and the two are also still within their range. Again proving that BIG is a great tool for cutting out the noise and bullshit.

As opposed to the typical internet "news" "writer", who's just a tool.

There certainly has been weakness in some rail traffic for a while - mainly cos of things like coal. (If you were reading New Deal Democrat's articles at the Bonddad Blog you'd know that already.) Trucking also suffers with high gas prices.

And Pacific shipping is looking brutal since US retail stocking for Xmas is slow-to-nonexistent: probably because the slowdowns in Europe and China (and mass-media "fiscal cliff" bullshit) have made retail management scared of a recession in the US, so they never bothered to put in their orders. Might be a really bad Xmas, sales-wise.

But if you want to use Dow Theory to say that today is the top of this bull move, you're going to be ignoring a shitload of other data - like NYSE new highs, for example. Or like retail's non-participation in this bull move. Frankly, today is not likely to be the top, no matter what the $TRAN vs $INDU divergence says.

Also, the above "trannies versus industrials" crap is not Dow Theory. Watching $TRAN vs $INDU is only one small indicator used in Dow Theory. Here. Read what Dow Theory really means. No? Fine. I'll summarize:

1. The market has three movements - major trend, intermediate reaction, and short-term swing.
2. Market trends have three phases - accumulation, participation, and distribution.
3. The stock market discounts all news. I.e. you can ignore all blogs from now on. Except obviously this one.
4. Stock market averages must confirm each other. That means the $INDU and $TRAN, sure, but don't forget the $RUT, QQQ, copper, bond yields, and so on.
5. Trends are confirmed by volume and why the fuck is it so hard to find a technical "analyst" who pays any attention to volume?
6. Trends exist until definitive signals prove they have ended. So, for example, shut up about the end of the bull move, you're wrong, because it's still going up.

That is Dow Theory. Sound familiar? Today you'd call it common sense.