Always consider hidden risks
DJ Transport and SP500: Major Divergence ?
May 27 ( From TradingView )
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The US equity market was showing some strenght since mid-October 2014.
Transports are 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 since its peak done on November 28 2014.
ONE chart below is worth a look where we will show the the Dow Jones
Transportation Index ( Chart below )...
We must observe carefully the DJ Transport Index as it is the basic
factor within the Dow Theory...
On March 30, the 20 DMA (Day Moving Average - Yellow Line - Chart Below)
on the DJ Transport closed below the 50 DMA (Red Line - Chart Below) ,
a first weak technical sign.
On April 2, the DJ Transport closed below the 200 DMA
(Green Line - Chart Below - Ellipse ), a critical technical sign indeed.
But the real worry is that we already Broke the triple low in the DJ Transport: First on December 17 2014 at 8580.81, the second on January 14 2015 at 8584.99 and the third on February 2 at 8583.54.
Closing Price on May 26 was 8350.50. ( See Red Trendline - Chart Below )
Another 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. ( Bottom Chart )...
Observe the Major Divergence since Mid-November as the ratio is making lower highs and lower lows but not the Mighty SP500. And Observe also that this ratio broke the support trendline but not the SP500:
Something Will Have to Give. ( See Grey Trendlines - Second Chart Below )
Dow Jones Transport ( Daily Candles )
20 DMA ( Yellow Line )
50 DMA ( Red Line )
200 DMA ( Green Line )
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."..
DJ Transport and SP500: Major Divergence ? $DJT, $SPY, $SPX, $ES_F #Trading #Emini #ES_F #SP500 #dowjonestransport
Dow Jones Transport
Dow Jones Industrials ( Top Panel - Blue Line )
50 DMA ( Red Line )
and SP500 Index ( Bottom Panel )