A “Dow Theory” sell signal has been triggered after the Dow Jones Transportation Average closed below its February lows, following the Dow Jones Industrial Average in doing so.
In short, the theory states that poor performance from both the industrials and the transports at the same time bodes poorly for the broader market. The theory is a market timing tool that has stood the test of time for over 100 years. Spitting in the eye of the signal, the Dow rallied over 400 points the next day!
One well-known market analyst says “fuggedaboudit”. James Saut, Chief Investment Strategist at Raymond James, released a note to clients stating that many non-market related factors were at play such as the FBI raid of President Donald Trump’s lawyer’s offices sparking a sell-off, and that “we are going to ignore this sell signal” given that the earnings outlook is so strong. Similarly, Frank Cappelleri, Chief Market Technician at Instinet LLC, also downplayed any significance by saying that market timing tools like Dow Theory are “interesting signs and potential signals to point out, but sometimes they play out and sometimes they don’t.”