LIVE MARKETS-Dow Industrials flirt with correction; transports flirt with bear

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DOW INDUSTRIALS FLIRT WITH CORRECTION; TRANSPORTS FLIRT WITH BEAR

Both the Nasdaq composite .IXIC and the S&P 500 index .SPX have confirmed they are in corrections by ending down more than 10% from their record closing highs.

However, the market's elder statesman, the Dow Jones Industrial Average .DJI, has so far avoided full-fledged correction territory.

On March 13, which has so far marked the lows of the recent market turmoil for the three main indexes, the DJI finished down 9.3% from its December 4 record close.

Also on March 13, the Dow Jones Transportation Average .DJT ended down 18.9% from its November 25 record close, putting it just shy of the minus-20% threshold for a bear market.

On Friday, the DJI finished off 6.7% from its record close, while the DJT ended down 17.7%. (The S&P 500 finished off 7.8% from its February 19 record finish, while the IXIC ended down 11.9% from its December 16 record close).

Proponents of Dow Theory, a form of technical analysis, study price action in the industrial and transportation average closely. One tenet of the Theory states that the market averages should confirm each other:

Of note, at the DJI's early December peak, the DJT was already collapsing. When the DJI neared its record highs again in late-January/early-February, the DJT was lagging badly relative to its highs. Of concern, both averages subsequently broke their early January lows, establishing downtrends.

Thus, bulls are looking for the DJI and DJT to continue their recovery and progress together in reversing their downtrends.

Meanwhile, traders can't help but notice the similarity in the extent of recent market weakness vs the last time the S&P 500 index suffered a correction.

In the period of market instability that ended in October 2023, the full extent of the S&P 500 index's decline on a closing basis was 10.3% (vs 10.1% this time). The DJI just missed a correction that time as well by declining as much as 9% (vs 9.3% this time). The DJT just avoided a 20% decline that time as well by tumbling as much as 18.8% (vs 18.9% this time).

(Terence Gabriel)

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