DOW Theory: Time to Buy or Sell ?

“Well, it depends on which Dow Theorist you ask.

To appreciate the intramural rivalry that currently exists among the Dow Theorists I monitor, consider where the Dow Theory stood a month ago.

The stock market then was at a make-or-break moment: A failure by the Dow Jones Industrial Average DJIA +0.13%   to confirm strength by the Dow Jones Transportation Average DJT +0.86%   could have sent stocks over a fiscal cliff of their own. ( Read my Jan. 21 column, ‘The Dow Theory’s very own fiscal cliff’ )

Since then, of course, not only have the Dow transports risen to a new all-time high, but as of Friday’s close we now have a new bull-market high for the Dow industrials as well.

This constituted an unambiguous Dow Theory bullish signal, according to 2 of the 3 Dow Theorists I monitor.

But Richard Russell is not so sure. Russell, who is editor of Dow Theory Letters, argued over this past weekend that the Dow industrials must close at a new all-time high above 14,164.53 to confirm the Dow transports — not at just a new bull market high.

And a failure on the part of the industrials to eclipse that higher level could set up a non-confirmation, with potentially very bearish implications…”

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