While most of the major stock markets have been ploughing higher this week, one key market index has not followed suit. The Dow Jones Transportation Index has in fact dropped by 4% since last week.
Why does this matter?
This is because the Transportation Index (or Transports) are composed of stocks that are sensitive to swings in the economy and it is viewed as a leading indicator of the stock markets and the general economy (see video below).
In simple terms, when goods are manufactured they need to be shipped and transported elsewhere for consumption. Therefore demand for transportation of goods is directly linked to the functioning of a healthy economy.
The Transports therefore hold a unique position as a leading indicator, so it is important to keep an eye on it. In fact, I have yet to see an instance where the Transportation Index has not led the other markets.
As the above chart shows, the Transports have been showing divergence on the Relative Strength Index (RSI) – while the Index made new highs, the RSI failed to make new highs – indicating weakness in the trend. We also have a squeeze forming, which could mean that the next move on the markets could be pretty explosive and volatile.
At the time of writing the transports have already broken through their Friday lows of 5214 and are heading lower. This could be an opportunity to look for shorting setups on the major markets.
If the Stock Markets do start to roll over, we could see the S&Ps (ES) head towards 1300 or possibly the levels at the beginning of the year.
Despite Greece hopium spikes, SP500 / DOW / NASDAQ very overextended daily charts continue to break down and risk of a waterfall sell off continues.
It has taken longer than expected to sell off but is getting closer.
I expect Gold and Silver to follow equities as usual.
Reminder that my SP500 monthly chart indicators continue to give bearish warnings and USDX monthly indicators continue to give bullish warnings. This big picture outlook will not change.
Despite Greece hopium spikes, SP500 / DOW / NASDAQ very overextended daily charts continue to break down and risk of a waterfall sell off continues.
It’s taken longer than expected to sell off but is getting closer.
I expect Gold and Silver to follow equities as usual.
Reminder that my SP500 monthly chart indicators continue to give bearish warnings and USDX monthly indicators continue to give bullish warnings.
This big picture outlook will not change.
It takes forever to see what Alessio mentioned happening – it looks like Europe is too strong to fight this crisis and they don’t want the markets to fall, the only thing that fell in the past few weeks is the USD.