Before looking at the chart for the Dow Transports, let's look at the Dow Theory situation. The Dow Industrials and Dow Transports both hit new highs in July and this marked a Dow Theory confirmation (bullish). Despite this bull market confirmation, both dropped sharply from mid July to mid August. In fact, both broke below their June lows and this development was bearish. The Dow Industrials quickly rectified this support break with a surge to new highs, but the Dow Transports could not get lift off and remained below its August-September highs. The Dow Transports has yet to confirm the new high in the Dow Industrials and this amounts to a Dow Theory non-confirmation.



Turning to the price chart for the Dow Transports, you can see that this key average broke above the August-September highs with a big surge on Friday. This breakout is significant because the Transports were showing relative weakness. The breakout is the first step to challenging the July high and confirming the Dow Industrials. At this point, the trend is up for the Dow Transports and I expect a move towards 5300-5500 as long as key support at 4800 holds.

Chip Anderson
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