Can the Transports Tow the Market Higher

• Posted by Greg Harmon
• on February 19th, 2016

A funny thing has been happening as the broad market has wallowed in economic fear since the beginning of the year. While the S&P 500 is about 9% off of its peak in November and spinning its wheels, the Dow Jones Transports are up 13% off of their mid January low. Can the Transports hitch up the market and tow it higher?

The chart below shows the weekly price action in the Transports since they broke out of a consolidation in late 2012. After nearly doubling they began a pullback in late 2014. This was much discussed as a signal that the markets were going to roll over. Since that pullback began the Transports retraced 61.8% of that move higher, making a bottom in mid January.

The Transports printed a Hammer reversal candle then and confirmed it higher the following week. And every week since. 13% sounds like a lot, especially when the broad market has done little, but the Transports still have some major mile markers to pass. The first will be a move over 7600. This would be over the falling 20 week SMA, the 38.2% retracement of that major run higher and a 38.2% retracement of the down leg since 2014.

Momentum is shifting to the upside to put a breeze at their backs. The RSI is making its first higher high as it moves towards the mid line, while the MACD is turning higher towards a cross of the signal line. That would be a bullish event. Keep an eye on this Index. It just might have the power to pull markets higher.

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