The Dow Transports led the equity market breakout in January 2013 and this sector has undoubtedly been one of the primary leaders of the rally since; nearly doubling in the 2 years between November 2012 and November 2014. However, since posting an all-time high at 9310 on November 28th, 2014 the Transports have been mired in a messy consolidation which is characteristic of a topping process:
For the first time since November 2012 the Transports are threatening to close below the 200-day simple moving average in consecutive trading sessions. This bearish development is made even more significant due to the following factors:
- Occurring after a multi-month consolidation at the top of a large uptrend.
- Thursday’s close was right at key support ~8600.
- The 50-day simple moving average is flat and beginning to slope downward (classic sign of a transition in trend).
- The October 2014 test of the 200-day SMA quickly found strong support and resulted in a powerful ‘V-bottom’. If price stays submerged below the 200-day SMA is a clear indication of a change in market character – simply stated, buyers are no longer as eager and sellers are becoming more aggressive.
The stage is set for an important test for equities early next week and we should know a lot more about the strength of this market by Tuesday afternoon.
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