One of the indicators I refer to when it comes to identifying whether we are still in a bull market or transitioning into a bear market is Dow Theory.
Dow Theory is more than a century old, and it’s one of the most followed and studied market indicators out there.
Simply put, it looks at the Dow Jones Industrial Average and the Dow Jones Transportation Average to determine the direction of the market.
Therefore, when you are looking at the two on a chart, you want to see a divergence of lows and highs between the two to signal a possible shift in market sentiment.
Right now, Dow Theory states we are still comfortably in a bull market.
Take a look:
Even though the transportation average peaked in July, it has still held above its previous lows from May.
That means we haven’t seen a divergence yet, and the bull market is holding firm.
For now, we will continue to buy the dips. But I’ll continue to keep an eye on this indicator and others to see when the bull market is fading.
Chad Shoop, CMT
Editor, Automatic Profits Alert