A Crash in the Transports?

Not so fast! The Transportation Index ($IYT) has had an epic move over the last 3 weeks. It is up over 9%. It hit a new all-time high. This combined with a new all-time high in the Industrials re-confirms the primary trend to the upside in equity markets according to Dow Theory. So why worry?

There may not be anything to worry about in the long haul. But in the short term that run higher happened very fast. The chart below shows the move up out of a long slowly rising channel at the end of November. This was a major technical positive. And it is now consolidating, digesting that move. Thursday saw a bearish candlestick though, a Bearish Engulfing candle.

This is a signal of a potential reversal lower. It needs to be confirmed by a lower close Friday. But with the RSI pulling back from overbought territory and the MACD turning flat, momentum is waning if not falling. These support a pullback. If it does happen a retest of the channel break would be a normal, healthy digestion. Below the October peak would add some concern, and under the November low would raise the sell signal. No crash yet in the Transports, but watch a little more closely.

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