For an idea which way this market is headed, it is good to examine multiple indexes to see if any patterns are developing. Dow Theory states that the Dow Transports should confirm any new high in the other Dow Indexes for a rally to be sustainable. The various Dow Indexes may diverge for a brief period of time but they need to confirm each other eventually. As the chart shows, the Dow Transportation Index appears to be forming a Triple Top. As I look at all the indicators under the Dow Transport model, I see a negative pattern of weakness forming in all of the indicators. This is visualized by the downsloping green line which shows increasing techical weakness. I could be wrong but I see a huge level of resistance forming here. Its anyone's guess how far any pullback will go. I can only point out technicals as they start to develop. If I had to guess I would place the Transports around 3500 which is about a 12.5% correction. Regardless if you think this market will move higher or not, it is a good time to book solid profits for 2009.
This is further confirmed when I see the "experts" in the media have finally jumped on the bandwagon for this long sustained market rally. For months they kept telling everyone to "wait for the bottom." Then we were told to "wait for the pullback." Now we are hearing this market "should move higher" after it has run for the PAST EIGHT MONTHS! (Sometimes I think that just by taking a contrarian approach to the mainstream media is all that is needed to outperform in this market but I hate to oversimplify things that way. That would be too easy.)
Note: The above is for information purposes only. Any decision to buy, sell, or hold a specific investment for a portfolio should be reviewed by your own personal investment advisor.
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