Dow Theory

One theory that many market participants subscribe to is known as 'Dow Theory.' In its general form, Dow Theory posits that trends in the Dow Jones Industrial Average (DJIA) are healthiest or most valid when they are paralleled by similar behavior in the Dow Jones Transportation Index (TRAN).

The rationale is that strong financial markets are grounded in strong economies, and strong economies require lots of transportation activity to move goods between sellers and buyers.

Currently, the DJIA remains in a very strong uptrend:

Recently, however, the TRAN has not been following along:

Instead, the TRAN has broken thru its uptrend line and is currently showing a wedge (a.k.a. flag or pennant) pattern that is likely to resolve soon.

This constitutes another divergence worthy of half an eye's attention...