Will the Dow Jones Follow the Soldiers?

An old Wall Street saying goes something like “When the soldiers leave the field of battle, the generals are soon to follow.” The meaning is that when the few stock market leaders are all alone, and most other stocks have already turned down…the few leaders are likely to follow as well.

Mid Cap and Small Cap stocks have broken down recently, and now the important Transports sector has diverged sharply from the Dow Jones Industrials. A venerable market theorem, “The Dow Theory”, raises red flags when the Dow Industrials and the Transports diverge significantly. They recently have, as illustrated by the chart below.

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