Dow Theory describes a trend in which two stock-market averages reach notable new highs implying that the broader market is likely headed higher. Yahoo Finance Markets Reporter Jared Blikre breaks down how highs in different sectors such as tech, industrials, and home building could be implying a continuing market rise.

Video Transcript

DIANE KING HALL: All right, well, the Dow has notched a new high for 2023. An old Wall Street forecasting tool making a comeback. With that in mind, joining us now is Jared blikre, who I like to call Professor Jared. Especially, in this instance. So what is Dow Theory? Take us back to school.

JARED BLIKRE: Well, Charles Dow back in the day and you might know him from the Dow. He posited that if the two stock market averages-- and it could be the transports and the industrials. We'll get to those in a second. If they reach notable new highs within the same short period, then the broader market is likely headed higher.

Now the broader market back in the day was probably the Dow Industrials itself. And today, we would consider that the S&P 500. But what we're really talking about here is just confirmation between multiple markets-- among multiple markets that we're in an uptrend. So here are the Dow Jones Transports.

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And this is an average calculated year-to-date. You can see, today is up over 2%. That's a pretty big move considering the rest of the market is a bit ho hum. And you can see here, this is actually at a 52 week high on this two-year chart.

And I just want to point out something else. We have a series of lower highs here that has transformed into higher highs. So we had a downtrend coming into the end of last year and now we have an uptrend.

And this is being echoed. At least, it's being confirmed a bit by the Dow. Now the Dow is also just barely at a 52 week high, although, it probably-- probably want to see technicians, want to see it break out and hold these levels a little bit more. But for the most part, Dow's, the two Dow indices are confirming each other.

Now, I want to point out to you what else is happening. Here is the tech sector. Here's XLK over the last two years. It has now come up. It is at a record high by a small amount. You take a look at home construction, a very diverse field, quite separate from what you might think is being done in the tech sector. Guess what? That broke out weeks ago.

That is already at new highs. Then, we can look at semiconductors. We can look at industrials. Industrials looks a little bit different here. But nevertheless, XLI at a record high. And finally, value.