DJIA vs. DJTA Divergence Supporting Diverging DJIA Price and RSI
As pointed out in a separate comment, the current price/indicator setup increasingly resembles that of 2000 and 2007, immediately before indices' pronounced price declines.
A look at the Dow Jones Industrial Average and the Dow Jones Transportation Average confirms that pessimistic view. Beginning in mid-2007, the DJTA started to trend downwards, while the DJIA remained caught in a relatively narrow trading range over the course of 2007 until early 2008. This pattern is currently being repeated, as the DJTA finds itself in a downward trend which started in late 2014, while the DJIA has been flat over the same time period.
Even more significant, in my view, is the divergence between the recent DJIA' price movement and the Relative Strength Index. It should be pointed out that the longer a divergence persists, the stronger its explanatory power - and eventually the correction it calls for. Having lasted for more than two years, the current discrepancy has persisted significantly longer than the divergence in 2007, which remained for about half a year, before indices fell by about 50%.
A look at the Dow Jones Industrial Average and the Dow Jones Transportation Average confirms that pessimistic view. Beginning in mid-2007, the DJTA started to trend downwards, while the DJIA remained caught in a relatively narrow trading range over the course of 2007 until early 2008. This pattern is currently being repeated, as the DJTA finds itself in a downward trend which started in late 2014, while the DJIA has been flat over the same time period.
Even more significant, in my view, is the divergence between the recent DJIA' price movement and the Relative Strength Index. It should be pointed out that the longer a divergence persists, the stronger its explanatory power - and eventually the correction it calls for. Having lasted for more than two years, the current discrepancy has persisted significantly longer than the divergence in 2007, which remained for about half a year, before indices fell by about 50%.
