"Dow theory" is a name given to the simple idea that the Dow Jones Transportation Average (Dow Jones Global Indexes: .DJT) ought to "confirm" the strength seen in the Dow Jones Industrial Average. If the Dow components rise to a new high while the Dow transports stagnate, a market dip could be ahead, the theory goes.
This divergence signals that "on a short-term basis, it's a pause [ahead]," said Ralph Acampora, director of technical research at Altaira Capital Partners.
There have also been divergences within the major indices.
"The leadership got fractured in the last few months," Acampora said last week. "We got tech at new highs, and you've got telecom making new lows and the financials are flat."
The market expert also states that should the Dow Theory prove true, "You could have a little bear market 15 to 20 percent."
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
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