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DJ Transports: Death Cross ?
June 1 ( From TradingView )
June 1 ( From TradingView )
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The Situation
The US equity market was showing some strenght since mid-October 2014.
Transports were performing very strongly since then and was a sign for that;
it did confirm the last upleg of the stock market. But the Transport are
weakening tremendously vs the DJ Industrials since January 29 2015.
On May 26, we had the 50 DMA ( Day Moving Average ) on the Dow Jones
Transports crosses below the 200 DMA ( Death Cross ). A bad omen...
( See first chart below: 50 DMA - Red Line - 200 DMA Green Line - Ellipse )
In fact, a lot more technical damage have been done when we broke the
Support Trendline also on May 26...
( See first chart below: Red Trendline )
ONE chart below is worth a look where we will show the ratio of the Dow Jones Transportation and the Dow Jones Industrials compare to the Mighty SP500. ( Second Chart )...
Since January 6, the 50 Day Moving Average on that ratio started a brand new downtrend ( DJ Transport started to underperform the Industrials ), indicating a weaker stock market ahead as shown by the charts below... It reached a level last seen in October 2014...
( See Second Chart below: Red Line )
But the most interesting pattern is that we have one the most biggest decline in the ratio ( Dow Jones Transportation and the Dow Jones Industrials ). Most of the time we had the 50 DMA on that ratio falling since 2007, SP500 did correct in price ( 5 out of 7 times ). ( See Third Chart below: Vertical Lines )
Also observe the Major Divergence since Mid-November as the ratio is making lower highs but not the Mighty SP500. SP500 is trading within a rising wedge. Quite surprising that DJ Transport underperform within Oil price historically low...
The US equity market was showing some strenght since mid-October 2014.
Transports were performing very strongly since then and was a sign for that;
it did confirm the last upleg of the stock market. But the Transport are
weakening tremendously vs the DJ Industrials since January 29 2015.
On May 26, we had the 50 DMA ( Day Moving Average ) on the Dow Jones
Transports crosses below the 200 DMA ( Death Cross ). A bad omen...
( See first chart below: 50 DMA - Red Line - 200 DMA Green Line - Ellipse )
In fact, a lot more technical damage have been done when we broke the
Support Trendline also on May 26...
( See first chart below: Red Trendline )
ONE chart below is worth a look where we will show the ratio of the Dow Jones Transportation and the Dow Jones Industrials compare to the Mighty SP500. ( Second Chart )...
Since January 6, the 50 Day Moving Average on that ratio started a brand new downtrend ( DJ Transport started to underperform the Industrials ), indicating a weaker stock market ahead as shown by the charts below... It reached a level last seen in October 2014...
( See Second Chart below: Red Line )
But the most interesting pattern is that we have one the most biggest decline in the ratio ( Dow Jones Transportation and the Dow Jones Industrials ). Most of the time we had the 50 DMA on that ratio falling since 2007, SP500 did correct in price ( 5 out of 7 times ). ( See Third Chart below: Vertical Lines )
Also observe the Major Divergence since Mid-November as the ratio is making lower highs but not the Mighty SP500. SP500 is trading within a rising wedge. Quite surprising that DJ Transport underperform within Oil price historically low...
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RATIO
Dow Jones Transport
Dow Jones Industrials ( Top Panel - Blue Line )
50 DMA ( Red Line )
and SP500 Index ( Bottom Panel )
Dow Jones Transport
Dow Jones Industrials ( Top Panel - Blue Line )
50 DMA ( Red Line )
and SP500 Index ( Bottom Panel )
Let s start with the Dow theory :
..."In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. To Dow, a bull market in industrials (INDU) could not occur unless
the railway average rallied as well (TRAN), usually first. According to this logic, if manufacturers' profits are rising, it follows that they
are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs
of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning
that change is in the air."..
..."In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. To Dow, a bull market in industrials (INDU) could not occur unless
the railway average rallied as well (TRAN), usually first. According to this logic, if manufacturers' profits are rising, it follows that they
are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs
of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning
that change is in the air."..
Charles Dow
Conclusion
Since 2007, it happened 7 times that when we had the 50 DMA on that ratio shifting downward, ( white vertical lines on the top chart above ), we had most of the time ( 5 out of 7 times ) a correction in the Mighty SP500.
The Dow Theory considers such behavior , as a divergence signal of a potential change in the bullish market’s trend.
Since 2007, it happened 7 times that when we had the 50 DMA on that ratio shifting downward, ( white vertical lines on the top chart above ), we had most of the time ( 5 out of 7 times ) a correction in the Mighty SP500.
The Dow Theory considers such behavior , as a divergence signal of a potential change in the bullish market’s trend.
DJ Transports: Death Cross ? $DJIA, $DJT, $SPY, $SPX Trading #investing #dowtheory #SP500 #dowjonestransport
Dow Jones Transport ( Daily Candles )
20 DMA ( Yellow Line )
50 DMA ( Red Line )
200 DMA ( Green Line )
20 DMA ( Yellow Line )
50 DMA ( Red Line )
200 DMA ( Green Line )
RATIO
Dow Jones Transport
Dow Jones Industrials ( Top Panel - Candles )
50 DMA ( Red Line )
and SP500 Index ( Bottom Panel )
Dow Jones Transport
Dow Jones Industrials ( Top Panel - Candles )
50 DMA ( Red Line )
and SP500 Index ( Bottom Panel )
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