Dow Theory update: New high in Dow Industrials

The US index Dow Jones Industrial made a new 2011 high after the Transport index made a new high on 31st March.

This validates the bullish stand. The dip in mid March did triggered a sell signal when the 50 SMA was broken.
But the recent swing low above 50 SMA was a buy signal. The above average volumes on breakout is a good sign.

The Transport index in remains in bullish trend.

The daily macd is though in sell mode but it has started turning to bullish mode.

Dow Theory update: New high in Transorpts

Just a small update that y'day Transport index hit a new high for the Year 2011.
The Industrial is still below the 2011 high of 12392.

This coupled with the new highs in US Small Cap index Russell 2000 shows that the US indices are on a bullish trajectory.

Dow theory update: Rally is under threat

The last Dow update was just a week earlier where the outlook was bullish when the Dow Transports made a new high negating the effect of crude which was a sign of caution.

Now the Transports have broken the previous swing lows and has closed below the 50 DMA. The volumes were also more than average this time. What is worth mentioning is that the decline has persisted for 2 days and both days were more about 1% decline.

The RSI and  Macd was already on bearish divergence sell signal.  Chart.

The current effect is due to Middle east disturbance which is escalating day by day and can have wider geopolitical risks. The biggest is the crude shock. The last one was in 1971 which we have to study in detail to know the effect. Will post the results about that later.

Dow Theory another Bullish confirmation

The Transports Index made a new closing high y'day. Last time we observed the Transport index was at 50 DMA while the Industrial was at new high. The main observation was that it was due to high crude effect. Post here.

Now with Tran index closing at new highs it is bullish confirmation as per Dow theory principle.

Way to go Dow.

Now since US indices is in bull phase what could be the implications for emerging markets esp Indian markets.

This is a whole macro trade here. My call is to confirm the earlier buy of companies exporting to US/Europe. That call was in mid Dec. Link here.

The IT sector coupled with Gems exporting and a few commodities centric sector can do well based on this macro play.

Dow Theory: Sign of caution or Crude effect

The latest signal from Dow theory is of caution. The last sign was of bullishness when Indu was at 11250 levels. Post here.

Now the Transports has broken the 50 DMA and has last swing high below 50 DMA while the Industrials INDU is trading above the 50 DMA. Chart:

While this could be the effect of crude as Transport companies use crude as their primary input and is there main cost. If crude stays above 90 levels then for sure it could have some effect on the Industrial index also as crude is used in every aspect of life which could for sure increase the inflation. More discussion can lead to debate here.So lets see charts.

The second way we can look at this is that divergence can be a buying point for Transports as Industrials is still at new highs. For that lets see how the broader US indices are telling us.

Not much of signs of caution in Midcap and smallcap indices.

Crude has moved to new highs though failed to cross the resistance there. The structure is still bullish of crude.

This all could be attributed to Egypt effect which lead to fresh highs in commodities. Reuters commodities index CRB broke to fresh weekly highs. Link here.