Confirmed Buy Signal Yields New Upside Target for the Dow

by Sam Collins | January 24, 2013 2:16 am

The Dow Jones Industrial Average gained again Wednesday — its ninth advance in 10 days. Strong earnings from IBM (NYSE:IBM[1]) and Google (NASDAQ:GOOG[2]), as well as a postponement of the debate on the debt ceiling, pushed stocks higher.

At the close, the Dow was up 67 points at 13,779, the S&P 500 gained 2 points to 1,495, and the Nasdaq rose 10 points to 3,154. The NYSE traded 638 million shares and the Nasdaq crossed 373 million. Decliners edged out advancers by a slight margin on the Big Board, but on the Nasdaq, decliners were ahead by 1.4-to-1.

DJI Chart
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DJT Chart
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Trade of the Day Chart Key

The most significant development this week was the break to new highs by the Dow Jones Industrial Average after lagging the Dow Jones Transportation Average for more than a month.

Some technicians pay little attention to the Dow Theory saying that it’s old-fashioned or that its composition has changed so much that it is irrelevant. But the theory has historical merit and thus demands that we review its recent performance.

The sell signal on Sept. 23, 1999, led to a decline of almost 30%. The buy signal in June 2003 led to an advance of 52%, which was followed by a sell signal on Nov. 21, 2007, and a subsequent decline of 49%. A Dow buy signal reversed that bear market in July 2009. Over the past 15 years the only false signal was the “flash crash” of May 2010, which in one day dropped the industrials 1,000 points. (Thanks to Jeffrey Saut of Raymond James for the data.)

Using the conventional method of calculating a target for the recent buy signal results in a level of 14,764 for the industrials. This is calculated by taking the breakout line at 13,653 – 12,542 closing low = 1,111 +13,653 = 14,764.

Conclusion: Major breakouts have occurred on the S&P 500 and the Dow Jones Industrial Average confirming that the bull market is intact. The target for the S&P 500 was stated on Jan. 18 to be 1,589 or higher, and now the target for the Dow industrials is determined to be 14,764 or higher — that’s 6.3% above Wednesday’s close for the S&P 500 and 7.2% for the Dow.

The train is picking up steam, and if you are an investor who is not yet on board, you had better make plans to join us on the next stop, i.e., pullback. This train is headed north.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[3].

For a list of this week’s economic reports due out, click here[4].

  1. IBM:
  2. GOOG:
  3. click here:
  4. click here:

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