Dow Theory sell signal?

I hope you had a good read on my yesterday post - the article was so long that it took me at least 3 times to reread it. Good stuffs.

The market is expecting a big show down between bull and bear this Friday. It will the day of announcement of unemployment data. If the data is a lot less worse, it will squeeze out short sellers. If the data is a lot more worse like shooting beyond 8%, most guys will scream through the roof - SELL. Most expect it to be around 7.5%. I will sit very tight for these few days or reduce positions because it is going to be very volatile.

Just to share with you what I saw - market timers begin to throw in a towel - is a good sign.

$INDU 7,936.83, -64.03, -0.8%) and the Dow Jones Transportation Average ($TRAN:Dow Jones Transportation Average $TRAN 2,908.67, -57.02, -1.9%) broke below their respective Jan. 20 lows. In the case of the Dow Transports, furthermore, Monday's closing represents a new closing low for the bear market that began 18 months ago.

The Dow Theory is the oldest stock-market-timing system in widespread use today. Its author was William Peter Hamilton, who introduced it in a series of editorials in The Wall Street Journal over the first three decades of the past century.
Hamilton argued that it is bullish if both the Dow Industrials and the Dow Transports jointly reach significant new highs. Similarly, the market is likely to continue falling if both Averages jointly reach significant new lows. Potential turning points are signaled when only one of the two Averages reaches a new high or a new low--"non-confirmations" in Dow Theory parlance.

It is just this sort of non-confirmation on which at least some Dow Theorists were recently pinning their bullish hopes. Last Friday, when the Dow Transports fell below their Jan. 20 low, the Dow Industrials did not.

This non-confirmation lasted just one market session, however, and was eliminated on Monday. After the close, Jack Schannep, editor of TheDowTheory.com, wrote to subscribers: "Yes, today the Dow Jones Industrials and the Transports closed below the January lows. That is a Dow Theory Sell signal ... Therefore, I suggest lightening up."

Also bearish is Richard Moroney, editor of Dow Theory Forecasts, the second of the three Dow Theory newsletters I monitor. However, on his interpretation the Dow Theory turned bearish at the end of t September; he did not feel as though Monday's action merited any special communication to his subscribers.

To be sure, careful followers of the Dow averages will note that there is an additional non-confirmation in the charts that might have bullish significance: Though the Dow Transports have broken below their Nov. 20 lows, the Dow Industrials remain nearly 400 points above their low of that day.

Interestingly, however, the editor of only one of the Dow Theory newsletters I track is placing much importance on whether the Dow Industrials remain above their Nov. 20 low. He is Richard Russell, editor of Dow Theory Letters.

Russell says that he won't turn bearish on the stock market's major trend "unless or until the Dow [Industrials] violates its Nov. 20 closing of 7,552.29, thereby confirming the Transport action ... I [therefore] decided to hold off on placing the bear on the site until we receive a bearish confirmation by the Industrial Average."
Russell's refusal to declare the Dow Theory as outright bearish is not much for the bulls to hang their hats on, however. Russell wrote Monday night that he wasn't turning officially bearish "despite the fact that I don't like the market action."