Reader question:

How long can the divergence in the DJT vs DJIA last? The QE3 put aside, I’ve never seen the Dow hold up this long with the transports doing so poorly, and don’t see them doing anything else but going lower, while the DOW hangs in. Is it because of last 2 days of quarter window dressing / beta chasing?
Monday should be by all accounts, a quick downturn, testing DOW 13,300, but I see 12,970 as a more focal pivot. What’s in your tea leaves.
Your call on Thursday mid day was the bomb! Unfortunately I wasn’t there to trade out of some Nov puts and re-enter. 
Thanks again,

First off, this is exactly the reason I focus on the Nasdaq for my market timing as I believe that technology leads the markets higher now. Once it was the Transports and the Dow Jones, but I just don’t feel that they are as relevant in this day and age as they once were. A basket of 100 stocks is much better than a basket of 30 also.

And secondly, I’ve noticed the disconnect between these two averages on the daily chart (Dow and Transports), but I don’t think it’s quite as severe if you look at a longer time frame. Below you’ll see a weekly and a monthly time frame and if you have a longer time frame the divergence isn’t as bad/significant.

In fact, it looks like the Transports held up better when the markets started selling off in 2008 (when viewing the monthly) and in reality the Dow has just been playing catch up for the last few years while the Transports have languished.

 


 

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One Response to “About That Dow Jones & Transports Divergence”

  1. Barry Jeffers Says:

    The top chart is clearly a divergence but I cant tell if the bottom one is. So close. I understand that the Advance/decline line is also diverging. Quite a 1-2 punch. However, it may be that the transports and the AD line are merely lagging. I saw it happen once before. They eventually “caught up”. Not a configuration to stay fully invested in though. We’ll get another chance.

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