Dow Theory-Transports

I don't argue that Dow Theory regarding the Industrials vs. the Transports is not as useful as it use to be being the US is not the same kind of Industrial power it use to be, but it is clear that the "theory" still provides excellent confirmation and areas in which reversals are highly probable.

For instance, in two charts...

 The Dow-30 in green vs IYT (substitute for the DJ-20 as it's pure transports) in red. You can see they mirror each other nearly perfectly and if it weren't for a slight scaling issue in 2011 (although the movement was the same), I could show you how long it has been since we've had a real divergence like this one to the right which is actually largely a negative divergence, but has elements of a smaller positive divergence, just as we expect.

On a 60 min chart you can see where transports went negative before the Industrials and pulled the market down, however since then the transports have been out-performing and making higher highs, suggesting an upside move in the industrials just as we expect, but still the overall divergence is still negative, meaning once again as we expect, we see a move to the upside (the shakeout) and then a new leg to the downside (the reason we want to short price strength during the shakeout).

In no way do I expect these to be sub-par or average moves, I expect them to be emotionally torturous and to really move market sentiment, you may not even want to stick to the plan after it unfolds, that is the point and to be effective you have to make people believe.