Using Immediate DJT Confirmation of New Dow Highs as a Short Term Buy

There are two interesting observations related to Dow new highs that are immediately followed by Dow Jones Transportation Index new highs. One pertains to the longer term new high (1 year), and the other more interesting observation is using a shorter period new high.

Yesterday the Dow made a 1 year closing high. Today, while the Dow Jones Transportation Index did not make it's one year high as yet, it did make a 200 day high (241 to be exact). Since 1929, this pattern has occurred only 20 times, with the Dow trading up 19 times within 3 days (18 of those occurred within 2 days).

Relaxing the critierias a little, we find that looking for DJT confirmation over a short period provides similarly impressive odds. When the Dow has made a new 40 day high, followed immediately the next day by the DJT printing a new 40 day high as well, it has often led to a higher high in the Dow within the next 1 to 3 days. There have been 46 similar occurrences since 1929. In 42 cases (or 91.3%), the Dow was trading higher within 3 days. In 38 cases (or 82.6% of the time) the Dow was trading higher within 2 days.

Ticker	Date/Time	Close	3Day+	%Chg N1	%Chg N2	%Chg N3
DJI	10/20/2009	10,041.48	0.00	0.00	0.00	0.00
DJI	4/30/2009	8,168.12	1.00	0.54	3.17	2.97
DJI	5/31/2007	13,627.64	1.00	0.30	0.36	-0.24
DJI	5/3/2006	11,400.28	1.00	0.34	1.56	1.62
DJI	4/24/2006	11,336.32	2.00	-0.47	0.16	0.41
DJI	4/3/1998	8,983.41	1.00	0.55	-0.30	-1.02
DJI	11/18/1996	6,346.91	1.00	0.80	1.31	1.13
DJI	10/15/1996	6,004.78	1.00	0.27	0.91	1.49
DJI	11/6/1995	4,814.01	2.00	-0.35	0.80	1.04
DJI	1/6/1992	3,200.13	1.00	0.15	0.12	0.29
DJI	9/5/1989	2,744.68	0.00	-0.91	-1.38	-1.28
DJI	7/28/1989	2,635.24	1.00	0.96	0.22	0.84
DJI	7/24/1989	2,584.98	2.00	-0.07	1.09	1.95
DJI	8/14/1987	2,685.43	1.00	0.56	-1.15	-0.73
DJI	8/7/1987	2,592.00	1.00	1.69	3.41	2.98
DJI	11/29/1985	1,472.13	3.00	-0.97	-0.89	0.83
DJI	1/11/1980	858.53	1.00	0.59	1.17	0.78
DJI	3/23/1979	859.75	2.00	-0.57	1.35	0.76
DJI	11/6/1974	669.12	1.00	0.42	-0.29	0.53
DJI	3/2/1972	933.77	1.00	0.93	1.76	1.40
DJI	1/10/1966	985.41	1.00	0.15	-0.15	0.03
DJI	9/21/1965	926.52	1.00	0.55	0.10	0.33
DJI	6/10/1960	654.88	1.00	0.15	0.00	-0.83
DJI	1/4/1960	679.06	1.00	0.94	0.52	-0.21
DJI	7/8/1958	480.00	3.00	-0.50	-0.21	0.59
DJI	6/5/1958	468.55	1.00	0.22	0.19	-0.08
DJI	4/25/1957	492.29	2.00	-0.16	0.34	0.42
DJI	4/4/1957	477.43	1.00	0.04	0.34	1.10
DJI	7/23/1956	513.61	2.00	-0.09	0.10	0.44
DJI	9/7/1955	475.20	3.00	-0.03	-0.13	0.28
DJI	7/7/1954	340.34	2.00	-0.16	0.27	0.17
DJI	5/19/1954	323.21	1.00	0.21	0.89	0.89
DJI	11/6/1953	278.83	0.00	-0.20	-1.05	-0.93
DJI	11/10/1952	273.47	0.00	-0.55	-0.34	-0.07
DJI	9/6/1951	272.28	1.00	0.59	1.09	0.59
DJI	10/17/1947	183.52	1.00	0.96	0.86	0.46
DJI	12/4/1945	193.06	1.00	0.01	0.40	0.53
DJI	10/9/1945	185.43	1.00	0.33	0.16	0.04
DJI	7/6/1944	149.07	1.00	0.19	0.96	0.74
DJI	9/29/1942	109.24	2.00	-0.12	0.38	1.46
DJI	7/14/1941	127.89	1.00	0.23	-0.05	-0.59
DJI	10/6/1938	148.10	1.00	0.21	0.98	0.88
DJI	1/19/1937	184.02	1.00	1.05	1.57	1.36
DJI	4/23/1935	110.06	2.00	-0.55	0.37	0.28
DJI	4/21/1933	69.78	1.00	5.60	3.83	4.10
DJI	2/14/1930	271.52	0.00	-0.36	-0.29	-1.13
DJI	8/26/1929	374.46	3.00	-0.18	-0.64	0.46

RSI2 Overbought + New High = Short Term sell.

Over the past month, by far, i have posted more buy signals than sell. Recently (over the past couple of days) i have been seeing more and more short term sell signals crop up. The first set of such signals was discussed Sunday night and remain on the board tonight. I of the belief that any decline that results from these signals may be buying opportunities, but none the less, the fact that they are showing up in clusters does indicate the market may need a pause. I have one more short term sell signal to add to the ones already open tonight.

S&P 500 RSI(2) closed at 97.35, just under the 98 i usually scan for. However, i decided to run a study to see what the odds look like when the RSI(2) closed above 97 and the S&P has made a new high. There have been 17 previous similar setups. In 15 cases (or 88%) the S&P was trading lower within 3 days.

(Note: column '3Day+' displays the number of days it took the S&P to close higher within the next 3 days. a value of 0 indicates the market did not close lower within 3 days)

Ticker	Date/Time	Close	3Day-	%Chg N1	%Chg N2	%Chg N3
SP500	4/12/1999	1,358.63	1.00	-0.65	-2.22	-2.63
SP500	7/1/1999	1,380.96	0.00	0.74	0.52	1.08
SP500	12/23/1999	1,458.34	1.00	-0.09	-0.05	0.35
SP500	12/31/1999	1,469.25	1.00	-0.95	-4.75	-4.57
SP500	3/23/2000	1,527.35	2.00	0.01	-0.23	-1.28
SP500	9/2/2003	1,021.99	3.00	0.42	0.59	-0.06
SP500	12/1/2003	1,070.12	1.00	-0.33	-0.50	-0.04
SP500	12/31/2003	1,111.92	1.00	-0.31	0.93	1.06
SP500	1/8/2004	1,131.92	1.00	-0.89	-0.41	-0.95
SP500	11/12/2004	1,184.17	1.00	-0.03	-0.74	-0.19
SP500	7/14/2005	1,226.50	2.00	0.12	-0.44	0.23
SP500	11/21/2005	1,254.85	0.00	0.51	0.86	1.07
SP500	1/9/2006	1,290.15	1.00	-0.04	0.31	-0.32
SP500	3/16/2006	1,305.33	2.00	0.15	-0.02	-0.62
SP500	10/24/2006	1,377.38	3.00	0.35	0.85	-0.00
SP500	11/17/2006	1,401.20	1.00	-0.05	0.11	0.35
SP500	1/16/2007	1,431.90	1.00	-0.09	-0.39	-0.10
SP500	10/12/2009	1,076.19	0.00	0.00	0.00	0.00

This suggests a close below 1076 at some point over the next 3 days.