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Dow’s Lower Low Triggers Dow Theory Sell Signal

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The Dow Jones Industrial Averages
DJIA,
-1.68%

A 767-point drop in Friday afternoon trading to break out below the June 17 closing trough (29,888.78) not only showed the bear market was alive and well, but also triggered a sell signal based on the ancient Dow theory of market analysis. The Dow’s fresh low, coupled with a series of lower closing highs since the Dow’s Jan. 4 record of 36,799.65, confirms the Dow Theory’s Definition of a Downtrend, an ongoing pattern of lower peaks and lower troughs. And since the Dow Jones Transportation Average
DJT,
-2.47%

already closed on Sept. 16 below its June closing low, the Dow Industrials’ new low is completing a “sell” signal. And as MarketWatch contributor and founder of Hulbert Ratings LLC has written, the Dow theory, despite its age, is beating the broader stock market for a long time.

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