On the verge

Like all Dow Theory adherents, we attach a lot of importance to new highs. Just as waves reaching new high points on a beach suggest the tide is rising, new highs in the market averages suggest underlying company values are rising.

Of course, just as a beach can see rogue waves, the majority money opinion will sometimes get things wrong. To reduce this risk, we like to see as many market averages and other measures of market breadth reaching new highs as possible:

• Capitalization-weighted measures like the S&P 500 and Wilshire 5000 indexes reached all-time highs last month.
• The S&P 1500 advance-decline line, a running daily total of advancing minus declining stocks, reached fresh highs last month.
• The Dow Industrials traded within 0.3% of the all-time high late last month, though the Dow Transports never came closer than 7%.

Breakouts to fresh highs in the Dow Industrials would be encouraging. But as Dow Theorists, we would need to see a fresh high in the Dow Transports before making a bullish call.

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