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Dow Transports Enter Bear Market09/12/11 10:58:37 AM
by Alan R. Northam
Long-term statistical analysis shows the Dow Jones Transportation Average entering a primary bear market.
|The lower panel of Figure 1 shows the daily price bars of the Dow Jones Transportation Average (.DJT). This figure also shows the 200-day linear regression trendline (heavy blue line) along with the upper one sigma channel line (red dotted line), the lower one sigma channel (green dotted line), the lower two sigma channel line (thick green line), and the lower three sigma channel line (dashed green line). The red channel lines represent resistance lines and the green channel lines represent support.|
|FIGURE 1: .DJT, DAILY. This chart shows the daily price chart of the Dow Jones Transportation Average (.DJT), in the lower panel along with its 200-day linear regression trendline and its channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator in the next lower panel.|
|Graphic provided by: MetaStock.|
|On August 2, the transports broke down below the lower two sigma channel line to warn of a possible reversal in trend from a long-term primary bull market to a primary bear market. Then on August 5, the transports broke down below the lower three sigma channel line to signal a reversal in trend.|
|Looking at the linear regression slope indicator in the top panel of Figure 1, note that this indicator broke down below its zero line on August 30 to officially mark the beginning of a new primary bear market for the transportation average. Note also that the R-squared indicator is still below its critical level at this time. Thus, until the R-squared indicator moves above its critical level, the new primary bear market trend for the transportation average is vulnerable to a reversal back to the upside.|
|The next lower panel shows the R-squared indicator that measures the confidence of the trend as well as its strength. This indicator has now moved above its critical level, indicating that there is a 95% confidence level that this new primary bear market trend will continue. Note that as long as this indicator continues to move upward, the newfound bear market trend will continue to strengthen and move down.|
|In conclusion, long-term statistical analysis shows that the primary bull market trend of the DJTA has come to and end and a new primary bear market trend has begun. As long as the 200-day linear regression slope indicator continues to move down below its zero line and the 200-day R-squared indicator continues to move up, the bear market trend will continue to move prices lower.|
Alan R. Northam
Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at email@example.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.
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