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Dow Transports Warn Of Reversal03/27/12 01:36:32 PM
by Alan R. Northam
This statistical analysis shows that the Dow Jones Transportation Average warns of a possible reversal in trend from up to down.
|Figure 1 shows the daily bar chart of the Dow Jones Transportation Average (DJTA) in the bottom window. The rising blue line from left to right is the linear regression line indicating the trend. This line is plotted from the highest close back 50 trading sessions and is an indicator of the intermediate-term trend. The red dotted line is the +1 sigma channel line, the solid red line is the +2 sigma channel line, the red dashed line is the +3 sigma channel line, the green dotted line is the -1 sigma channel line, the solid green line is the -2 sigma channel line, and the green dashed line is the -3 sigma channel line. Note that the price bars have been trading between the -2 sigma channel line and the -3 sigma channel line warning of a change in trend ahead. A close below the -2 sigma channel line is a warning of a possible change in trend. A close below the -3 sigma channel line is a signal that a change of trend is occurring.|
|FIGURE 1: .DJT, DAILY. This chart shows the daily price chart of the Dow Jones Transportation Average in the bottom window along with the 50-day linear regression line. The linear regression slope indicator is shown in the top window, and the R-squared indicator is shown in the middle window.|
|Graphic provided by: MetaStock.|
|The R-squared indicator in the middle window indicates that it has moved below its critical level, indicating a lack of trend. A lack of trend is a sign of weakness and indicates that the Dow transports are now vulnerable to a reversal downward. However, we must be aware that the DJTA could regain its strength and mount a new rally.|
|The linear regression slope indicator in the top window shows that it has moved below its zero line, indicating that over the most recent 50 trading sessions, the intermediate-term trend has already reversed directions down. To confirm that a reversal in the intermediate-term trend has taken place, the linear regression slope indicator must be below its zero line, price needs to be below its -3 sigma channel line for two consecutive trading sessions, and the R-squared indicator must move above its critical level.|
|This analysis shows that the DJTA is currently warning of a possible reversal in trend over the intermediate term from up to down. This reversal in trend will be confirmed when the linear regression slope indicator is below its zero line, when price closes below its -3 sigma channel line for two consecutive days and the R-squared indicator has moved above its critical level. Until all these conditions occur, there is always a possibility that price will regain its strength and mount a new rally to new higher highs.|
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 firstname.lastname@example.org or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.
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