Leading Indices At Bull Market Peaks
by Tim Hayes
So which indices do you think most reliably lead the market? To find out, STOCKS & COMMODITIES
contributor Tim Hayes, who was also interviewed in the August 1991 issue, examined 14 indicators for
their market forecasting ability, beginning early in the 20th century. The indicators that he studied
ranged far in variety and included the categories of economics, market breadth and interest rates. Of the
14, two were judged to have performed the best in leading the market within these categories. What were
they? Keep reading.
Confirmation and divergence. Technical analysts cannot afford to ignore this Dow theory tenet, which
holds that the greater the confirmation between the Dow Jones Industrial Average (DJIA) and the DOW
Jones Transportation Average (DJTA), the stronger the trend is; and the greater the divergence, the more
suspect the trend is. It can be especially useful to keep this tenet in mind when watching indices that tend
to peak before the rest of the market does. When such an index diverges, a market top may be
forthcoming; when it reaches new highs, higher highs may be ahead. Here, let us compare various leading
indices and, in the process, attempt to gauge their reliability.