The Dow Theory in a nutshell was that before you or I could go to a store and buy something, it had to be made. Before that, it had to have raw materials shipped to the factory. So by watching transports, you could spot a rising market first as the transports would get more business first, then the manufacturers, and eventually the retailers.
With that in mind, I find this chart a bit of a bother:
DJIA is the actual Dow Jones Industrial Average (not the DIA Diamonds ETF that tracks it) and the DJTA is the Dow Jones Transporation Average. SPY is the ETF that tracks the S&P 500 stocks.
DJTA looks to have cleanly peaked and rolled over before the DJIA or SPY.
I only have one Simple Moving Average (SMA) on this chart. 40 weeks. With 5 trading days / week, that is the classical 200 day moving average. When a stock drops below that, it is in a bear market configuration. The DJTA is clearly below it.
DJIA and SPY are both in a ‘double top’ configuration right now. At this point it is an inflection point in market sentiment. IFF price pushes through that ‘resitance’ to a new all time high, things tend to rise for another round ( IMHO a month or two until The Fed raises rates and kills the party buzz of free money). IF price “failes to advance” and drops back down, the “double top” is in and it’s a bear market confirmation.
But the Transports have already done that… About 6 months ago.
We also know metals are way down and not budging. (One must mine and ship some copper prior to making blenders, cars, homes, or cell phones). Metals are NOT saying anything good at all. Partly that is a strong $US reflected in the price in $US, but partly it is just weak demand. Millennials are more interested in ‘experiences’ than in collecting a house full of stuff. China has hit the Economic Pause button. The Middle East is way too busy killing each other to think of buying things. Russia is embargoed for some (much?) stuff. The E.U. is driving itself to poverty (both fuel and economic via socialism and an influx of
invaders migrants demanding Government Largess that is no longer fundable). The whole Emerging Market world is in sad shape ( Brazil is on the Socialist Rocks again, along with much of Latin America) with Africa slowly decaying back to pre-colonial tribalism. Add in that The Baby Boomers are at mid-retirement age. We are cashing out and downsizing more than buying stuff.
The only good news is that car sales are up, near as I can tell. But that won’t last forever. It’s a binge on low gas prices and nearly free financing. As soon as demand is met, that door slams shut. Housing sales have tailed off already.
So just whom is going to buy stuff to get it manufactured and transported?
Looking at the indicators:
Volume was high in that early drop, then slowly faded into about Oct 2014 when a down spike caused a volume spike. Volume has risen during this downside run, and is not very strong on that little up tick at the end. A bit ambiguous, but not encouraging in any case.
DMI (down at the bottom) has “red on top” being bearish and with ADX (black line) dropping toward 20 on this upturn. Strength was higher on the down run than on the upturn. While ADX has inflected, DMI+ (red line) has not and has not cleanly crossed it yet. The down run is not confirmed broken until then.
MACD is clearly below zero. Bearish. Has been bearish (red on top) since that “failure to advance to the upside” 6 months back. Now it is ‘blue on top’ but below zero. That configuration is “counter trend rally in a dropping context”. MACD has to be above the zero line to be ‘bullish run’. So a nice trade upside, but sell at the SMA stack and buy back in later if the run continues. And price is almost touching the SMA line. I’d not be buying Transports here.
But if Transports aren’t “making it” with low gas / diesel / kerosene prices and Christmas Demand, what will?
To me this is looking more like “last call to exit” than “all aboard new rally”. I need to do a few more charts on things like individual sectors and such, but it just doesn’t look all rosy to me.
I suspect the best we can hope for is Obama calling up Yellen at The Fed and talking them into zero interest rates until the election and expand the balance sheet another $Trillion or 2 for The Budget Deal… (only 1/2 sarc;/)
So I guess I still don’t know if the Transports know something the Industrials and the Retailers haven’t heard yet.
But it is sure looking that way to me.
My Strategy Now
I’ve sold out of most stuff. Doing the “duck and cover” until a direction is clear Usually the government does all sorts of stuff to make the party of the sitting president look good in an election year. For the next 12 months, that ought to be the case and it usually lifts the market some.
But this government has been beating this horse for 7 years now. I don’t think it is going to get up and trot now…
China has “fixed things” there (yeah, right /sarc;) and yet reality has not budged. Yet More of the paper fix that doesn’t do much in the real world economy of making things for people to use. I’m sensing a ‘decoupling’ moment…
So until I see some life in metals (especially copper), a bit of upturn in Emerging Markets (including China) and transports booking some business, I’m not seeing much to warm my soul, or fatten my wallet.
Maybe I’m being too pessimistic. Or maybe I just look in my shrinking ‘discretionary spending’ wallet and think “I’ll pay the mortgage and buy groceries this month”… In that context, stocks in the IRA are not likely to go gangbusters… How far below zero can The Fed take interest rates to “juice the market” more, from this point anyway?