So far 20 of the past 22 trading days have been higher (as of 9 December 2016).
This overlay of the Dow 30 and the Transports* shows a true bull market signal, as they both confirm each other breaking to new highs.
This graphic has the DOW moving above its early 2016 high and above the 2015 high.
The transports have confirmed this movement with a rally above the early 2016 high and 2015 high.
The importance of this cannot be underestimated as fund managers, trend traders and the broader general public use this indicator of market direction for position trading.
So where to from here?
Markets are never a straight line and there are some key equity drivers for the index.
Equity indices are often made up from a weighting of large cap stocks. In Australia, the top ten stocks account for 57% of the index’s value, and this includes the four banks.
The Dow 30 is heavily weighted with Goldman Sachs and 3M, with IBM and United Health coming in fourth and fifth. For the larger and more diverse S&P 500, the leading component is Apple at $720 billion and the smallest, Diamond Offshore Drilling, at $3.65 billion.
With the shifting view that the world may be on the slow road to recovery, these two indices are pricing in future growth and activity. This is expected to flow on to other geographical markets like Australia.
Typical pullbacks and retests of support will occur. The chart also shows the relative strength indicator in overbought territory, suggesting the market may reverse in the short term.