Charting the Rollover in Transports vs Dow Jones

Jun 1, 2015: 6:15 PM CST

If you’ve been watching the Transports, you’re seeing a Rounded Reversal and bearish breakdown.

However, you’re not seeing a similar picture in the Dow Jones Industrial Index.

Let’s chart the arc and make some sense of what’s happening at the moment:

I’m a big fan of “Rounded Reversals” or “Arc Trendlines” in price because they are clear patterns that often follow a stable pathway.

We see negative divergences at the highs as price “Rolls Over” in an arc, giving us chances to play short into the breakdowns like those we’re seeing now.

However, I did want to highlight a critical support pivot that will drive our trading decisions:

Note the 61.8% Fibonacci Retracement into the 8,300 level and today’s bullish bar off this level.

Also note that this bullish day occurred on high buy volume.

Follow price up toward the first target into 8,450 and then 8,500 according to the Fibonacci Grid.

Otherwise, Transports – and like the Dow Jones/US Stock Market itself – would be bearish on a break further beneath 8,300.

Here’s the comparison between the Industrials and the Transports – a component of Dow Theory:

The Blue Line represents the US Dow Jones Industrial Average (30 stocks) while the Red Line is the Transports (TRAN).

Generally these pairs trade together, rallying as a group and declining as a group.

However, as the Dow has crept to new all-time highs above 18,200, the Transports (TRAN) peaked into the 9,200 (left scale) resistance and have been heading lower through most of 2015.

In fact, the Transports broke support into the 8,600 level and now face the support challenge (mentioned above) into 8,300.

This isn’t the most bullish picture possible and buyers perhaps should be cautious given the Rounded Reversal and breakdown while the Dow traded higher.

Look for bearish/defensive plays if the Dow Jones shatters support at the 18,000 level – otherwise continue the “creeping bullish” posture while the rising-range bullish slither continues.

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Corey Rosenbloom, CMT
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1 Comment

One Response to “Charting the Rollover in Transports vs Dow Jones”

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