3 Reasons the Transports May Need to Refuel

• Posted by Greg Harmon
• on February 26th, 2015

The Dow Transportation Index is the only major index yet to make a new high this year. All of the others have shaken off that weak January and are moving up, most to new all-time highs. I wrote a couple of days ago here about how the Transports may be setting up. But nothing yet. Maybe they just ran out of fuel?

The chart above shows three reasons why the Transportation Index may need to rest for a while, like the S&P 500, Nasdaq 100 and Russell 2000 did for several months. First at the top, the momentum indicator RSI is technically overbought. You can see that it has already worked off a lot of the overbought signal, but is still in that condition.

Second the price action has gone through a very long term AB=CD pattern dating back to 2003. Well not exactly, as the CD leg has extended to 2 times the AB leg, but that does not invalidate the pattern. The completion of the pattern would look for some consolidation or a pullback, like the BC leg.

Finally at the bottom of the chart the MACD indicator is stalling. You can see after a strong move higher since 2013 it is sitting a level that towers over any it has seen in at least the last 20 years. it could use some resetting.

Everyone of these indicators can always get further extended or more overbought. But given how the market has acted broadly over the last 18 months, rotating through consolidations in various sectors, no one should be surprised if the transports sit out for a while and refuel.

Get my book, Trading Options: Using Technical Analysis to Design Winning Options Trades.

Want to learn more about Dragonfly Capital Views?
Dragonfly Capital Views Performance Through February 2015 Expiry and sign up here

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus