Dow Theory confirmation by transports of industrials' new high is buy signal, but indicators continue to warn

A reader asked a day or so ago about Dow Theory giving a confirmation buy and I've finally looked into it. Below you'll see the transports' daily chart using line style (not candlesticks) making it easier to see with day-closing data that it edged a slightly higher high at the beginning of this week. Tim Wood is the Dow Theory expert I pay attention to - he's the technician whose "Cycles News and Views" site is in the other sites of interest listed at the right side of the page here. Here's what he's said about it:

The price action on Monday carried the Transports to a closing high of 4,046.50, which surpasses the previous closing high of October 20th at 4,045.11. As a result, the short-term Dow theory non-confirmation has been mended and on Tuesday the Transports made yet another recovery closing high. From a Dow theory perspective the averages are again in gear with each other to the upside.

So it's possible to view the confirmation as a "buy" for the continued move up. I'm okay if anyone wants to buy these indices on this basis. Just keep a close stop to protect against losing support. Because the past two days were weaker, though can be just consolidation before another push up. But again, will the signal have lasting effect? Anyone buying on the signal won't want to see today's lows violated. The other technical backdrop indicators have been weakening, so whether or not buying or adding to longs, you want to remain cautious here. If you're following the posts about indicators here lately, you know that the indicators such as the advance/decline data haven't yet confirmed the indices are ready to sustain the rally longer.

For that matter, despite the transports' daily chart indicators currently in synch with the move up from early November, look at the weekly chart's negative divergence in the StochRSI indicator. And if the transports push much higher, there's substantial overhead price resistance from the 2007/208 lows.

So, I'm not poo-pooing the Dow Theory confirmation. Just saying it confirms the rally isn't over yet - and doesn't change the fact that we're at a juncture where equities may turn quite soon as suggested by market internals as well as Dow Theory's younger brother, Elliott Wave theory.