IT APPEARS THAT THE END OF THE BEAR MARKET IS NOT CLOSE.
Dow Jones Business News
Dow Theory Is In Play And Portending More Selling
Thursday October 10, 12:39 pm ET
By Karen Talley, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- For proponents of the Dow Theory the market's action has confirmed their worst fears - stocks are in a severe bear market and more selling is on the way.
The Dow Theory holds that a major trend in the stock market is confirmed when both the Dow Jones Industrial Average and the Dow Jones Transportation Average hit new highs or lows.
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Both indexes plummeted to multi-year lows on Wednesday, with the Dow industrials losing 215 points to close at 7286.27, a level last seen five years ago, and the Dow transports falling 102.33 to 2013.02, a point not seen in six years.
According to Dow Theorists, the moves not only confirms the market is stuck in a grueling bear market - which is actually not a surprise - but also indicate " there is more to go to the downside," said Richard Dickson, chief technical analyst at Hilliard Lyons. "There is nothing good about the development."
At the theory's center is the fact that so many industries are represented when you put the two indexes together. The Dow industrial average ranges from tech to financials to retailers. The Dow transport contains railroad, airline and trucking stocks.
What would turn the tide? The Dow Theory says both indexes have to make new intermediate highs. In this case, the levels would be spots that were hit during the brief summer rally and represent a 20% rise from current levels.
The Dow industrials, now at 7421, would have to reattain their Aug. 22 level of 9053 and the Dow transports, now at 2058, would have to rise to 2464, also hit on Aug. 22.
That's a long road back and not supported by recent market action where buying has not only been steep, but broad, catching up just about every industry sector.
Consider Wednesday's action: all 20 members of the Dow Jones Transportation Average fell and 27 of 30 Dow Jones Industrial Average members dropped. The three gainers contributed little, with Exxon-Mobil up 13 cents, Philip Morris rising 41 cents and Intel ahead 24 cents.
-By Karen Talley, Dow Jones Newswires; 201-938-5106; karen.talley@dowjones.com
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