The oldest stock market indicator on Wall Street just flashed a buy signal

04.07.2017 / 12:58

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The stock market has been on a tear this year and more gains may be ahead, according to what some say is the oldest market indicator on Wall Street.

The Dow Jones industrial and transportation averages hit all-time highs on Monday, confirming each other's upside trends and triggering a "buy" signal in the market, according to the "Dow theory."

The theory was created by Charles Dow in the early 20th century (after whom the two indexes above are named after) and it examines the relationship between the transports and industrial averages. Simply put, it states that major trends must be confirmed by both the transports and industrials indexes. Confirmation of a trend higher sends a "buy" signal in the market; one of a trend lower sends a "sell" signal in the market.

The fundamental basis for the theory is that transports stocks are considered the backbone of the economy and so if they are doing well, then the whole economy must be doing well, the thinking goes.

Source: Bloomberg Pro Terminal

Jr Trader Alexander Kumanov

Varchev Traders

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The oldest stock market indicator on Wall Street just flashed a buy signal

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