DOW THEORY UPTREND CONTINUES -- CATERPILLAR AND CHEVRON ARE DOW LEADERS -- OVERSEAS SHIPBUILDING AND UPS CATAPULT TRANSPORTS TO NEW HIGH -- UTILITIES ARE LAGGING BEHIND BUT REMAIN IN UPTREND

DOW THEORY UPDATE CONFIRMED ... Dow Theorists will be happy to see today's first two charts which show the Dow Industrials and Dow Transports hitting new recovery highs. Dow Theory holds that a healthy uptrend should see new highs in one index confirmed by the other, which is what the first two charts show. The theory is based on the view that industrials make the goods, while the transports move them. A healthy economy needs both groups rising. So far, that's still the case.

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CATERPILLAR AND CHEVRON ARE DOW LEADERS... Two of the biggest reasons for today's Dow rally are shown below. Chart 3 shows Caterpillar surging 6% to clear its fourth quarter highs (and on rising volume). Its rising relative strength line (below chart) shows it leading the Dow higher since the start of the new year. That puts CAT at a new 52-week high. Chevron's nearly 2% gain scored a bullish breakout of its own. The daily bars in Chart 4 shows the big oil stock closing above its November peak (also on rising volume). Its rising relative strength line shows CVX starting to outperform the Dow for the first time in two months. The weekly bars in Chart 5 show Chevron achieving an even more important breakout by exceeding its late 2008 peak just below 80. Its relative strength line is also starting to turn up for the first time in a year.

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TRANSPORTATION LEADERS ... Today's 5.5% gain in Overseas Shipbuilding (OSG) made it the top percentage gainer in the Dow Transports. Chart 6 shows the stock having achieved a bullish breakout through its 2009 highs near 45. Its relative strength line (below chart) also shows new upside leadership within the transportation group. Chart 7 shows UPS achieving a bullish breakout of its own (in very heavy trading). Its relative strength line (versus the Dow Transports) appears to be turning up for the first time since last spring.

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DOW UTILITIES ALSO BOUNCE... Although the Dow Utilities are not part of the official Dow Theory, I like to keep an eye on their major trend as well. They've been the weakest part of the Dow family, but just recently hit a new 52-week high. Chart 8 shows the Dow Jones Utility Average starting to bounce off chart support along its October high. The best way to combine all three Dow Averages is by tracking the Dow Jones Composite Index, which includes all 65 Dow stocks (30 industrials, 20 transports, and 15 utilities). Chart 9 shows the DJA continuing to hit new recovery highs.

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Chart 9