WaveStrength Market Trends for November 16, 2006
New High Confirmation?
by Ann Sosnowski
Another new high? Yes, another new high. Dow 12,325.91.
Most of my colleagues here in the office see Dow 13,000 happening in early 2007. However, if this index keeps pumping… it might very well hit that level before the end of 2006.
Now let’s go back to Dow theory for a moment…
Dow theory states that to confirm a bull market, both the Transports and the Industrials need to mark new highs.
Currently the Transports are at a value of 4,884.68. The 52-week high is 5,013.67 from May 2006. So the Transports need to move 2.6% to mark that high yet again, and attempt to surpass it.
Since the beginning of what I term an “obscene” rally that started in July, the Dow has put on 12.5% in gains. The Dow Transports have risen 15%.
If the Dow Jones Industrials and the Dow Jones Transports continue to move in their current 12.5–15% ratio, when the Transport index moves that additional 2.6% to mark the new high at 5,014, then the Dow needs to move 2.16%.
When the Dow Transports hit a new high at 5,013, the Dow will be at 12,579 in a perfect world according to the ratio correlation.
Once the Dow Transports hit that new high, it will signal the second phase of this current rally. And the beginning of a real bull rally.
Of course, you should see a correction after those new highs… but that will be nothing compared to its move toward 13,000.
Yes, I admit it… on my birthday of all days -- I’m bullish on the Dow.