Dow Industrials Flirt With All-Time Highs

4/28/2014


Helped by strength in airlines and railroads, the Dow Transports reached fresh all-time highs. The Dow Industrials have moved within 1% of new highs, but a close above 16,576.66 is needed to reconfirm the bullish primary trend under the Dow Theory.

Nonconfirmations often represent yellow flags, and the Transports have now reached new highs on four separate thrusts this year without corroboration from the Industrials. Still, the basic story for Dow Theorists is unchanged: A close above 16,576.66 would represent a bull-market reconfirmation, but a failure to surpass that level would keep the Feb. 3 lows of 15,372.80 in the Industrials and 7,035.75 in the Transports as actionable bear-market points.

One reason for optimism is the recent strength of the broad market. After slumping in early April on the shakeout in momentum stocks, the S&P 1500 advance-decline line has rebounded to new highs. With earnings season for smaller companies still in full swing, continued strength in this indicator would be bullish.

Also encouraging is the strength in the Transports and other economically sensitive stocks. The Morgan Stanley Cyclical Index has rebounded close to its April 2 all-time high, as have the S&P 500 industrials and materials sectors.

For now, our buy lists have 93% to 97% in stocks.


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