Dow Theory Request

Dow Theory was one of the most difficult concepts to teach while I taught Technical Analysis, but one of the simplest components is confirmation between the Industrials and the transports, how can the goods producing Industrials do well and the economy do well if the transports that deliver the product are not doing well, and while Dow Theory and the components of the Industrials have changed since way back when, it still works pretty well and I was asked to show Dow Theory and this seems like a perfect time as the market seems to be in an options expiration PIN which  is simply the fact that most retail traders buy options, not write them and the majority of options expire worthless, the PIN is finding the right price level to make the most number of options expire worthless on expiration day (today) allowing smart money who is the primary write or seller of options to retail, to keep the premium, op-ex pins have almost NOTHING to do with the market and what comes the next trading day.

 First here's the yearly chart for the Baltic DRY Index, these are the prices Dry Goods Shipping companies receive, when they are low, demand for shipping is low, as we saw this week, the Port of Hamburg which is the second largest dry goods harbor in Europe, just saw a huge decline in shipping activity, which matches the GDP activity also seen this week. Prices are at the same level as Feb. or at a 1 year low, it's actually much longer than 1 year.

However for our purposes of Dow Theory which is more immediate in this case, I'll use IYT (Transports) and show you some DJ-20 (Transports) as well , first vs the Dow. In Dow Theory the two should have good correlation, when correlation slips/diverges, you are likely at a turning point in the market.

 The Dow in green and Dow-20 in red, the green boxes show excellent correlation and trend confirmation, the red boxes show divergences.

 The Dow-30 vs IYT (Transports)

Now a look specifically at IYT, Transports

 Since the 24th there has been a bad leading neg. divergence in IYT. (2 min trend)

 This appears to be the same chart, it's not, this is a different timeframe, 3 min.

 The 5 min chart's trend showing the history of divergences and the reversals from those, this current divergence would be the largest on the chart (price neg. divergences are in red, positive in white). Note how consistently smart money buys the lows and sells the highs, it has a lot to do with supply and demand.

 The 15 min chart's trend, and I show the trend so you can see how low and large the current leading negative divergence is compared to previous divergences. If you look to the far left at the first white positive divergence, if you were o have bought at the first sign of the divergence around $91.20, even as price headed lower in the positive divergence to the $88.80 level, you still would have made money up at the $94.40 level. We try to get the best entry possible, but very often this is how these charts play out, price often moves well in excess of where the divergence first started.

I don't want to over run you with charts, but I thought it would be interesting to see how similar some of the DJ-20 divergences are to IYT.

 That same date of the 14th comes up on this 3 min chart.

On the long end, the 30 min chart, gain this is the largest divergence on this chart comparing relative price/3C levels and on an important timeframe.