The Transports are Still Looking for Fuel

• Posted by Greg Harmon
• on February 4th, 2016

The Dow Transportation Index started a long trip higher at the end of 2012. It reached the top of the mountain at the end of 2014 and then started a drift lower, like someone forgot to set the emergency brake. The drift gained momentum in November gathering speed and looked like it finally hit a tree or something when it bounced two weeks ago. Clearly the transports had run out of gas upon reaching the top.

There are are several promising items to watch in the chart below for the transports. But there are also many that show the possibility of a continued move lower. In the technical analysis business this means stick with the prevailing trend (lower) and now watch for more signals to shift the other other way of for the bullish one’s to fail.

In the bullish camp is the fact that the transports have retraced 61.8% of the move higher and are bouncing in the short run. The candlestick 2 weeks ago, a Hammer, signaled a reversal and was confirmed higher last week. Needless to say, continuation would be constructive.

But the index is still below its falling 200 day SMA, and has bearish momentum. The RSI is in the bearish zone and the MACD is falling. That Hammer took place outside of the Bollinger Bands® and the bounce has done nothing more that move the index back inside the Bollinger Bands.

There are reasons to watch the transports but for now there is no reason to buy them. A move over 7000 could be the point to get involved, but a move back under 6500 would be very bearish. Until then it is time to just sit and watch.

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