Another Breakdown Brewing for Transports?

• Posted by Greg Harmon
• on March 29th, 2016

The Transportation Index ($IYT) is a barometer of economic activity and the strength of the market for many. Dow Theorists use it as a signal along with the Industrials of bull or bear market switch. And the Transports have had a great last 2 months, after a 14 month move lower. So what is next? Will the Transports make a higher high and continue or is this just a Dead Cat Bounce?

The chart below suggests that the next few weeks will give that answer. One the one hand, the bull case sees the Transports pulling back to the rising support, coinciding with the 20 day SMA. the last week saw them cross the 200 day SMA and it is holding as support. As they do the RSI is in the bullish zone and the MACD positive.

But the bear case is not far away. That RSI is pointing down, falling in that bull zone. And the MACD is about to cross down, a bearish signal. A crack of the 200 day SMA and rising support would confirm a move lower, and lock in a lower high.

Personally I will be sitting on the edge of my chair looking for a move under the 20 day SMA at about 138.25 to view it as bearish in the short run, and a move over 151.02 to confirm the upside bullish case.

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