Break Out
The Dow Jones Transportation Average (TRAN) has been the weakest link compare to other major indices; this index has been lagging so badly, that some "experts" claimed this was a huge problem in the overall market, and other indices could follow the footsteps of the Transport.
But my thoughts on this issue has been different: we can't dispute other indices' price-action just because Transports are lagging--yes, it is concerning but does NOT mean we throw away and dispute other indices strength, and conclude that the whole thing is going to crash.
That would be foolish to put too much weight on one index, that's why we have five to six indices to study/ascertain from.
It does NOT make sense to base your analysis just on one index's weakness. All major indices havev to be accounted for also.
The question is then, will Transports drag other indices down or will other indices like the Dow Jones Industrial Average drag the Transports up? I have been in the latter camp.
As the overall market continues to grind higher and stays put after printing all-time-high records, the Transports are finally breaking out; Yesterday they were above major-downtrend resistances.
I believe the Transport index is now ready to follow the lead from the Industrial Average (DJIA/INDU) and S&P 500 Index (SPX).
Let's check out this chart, and talk technicals:
Since late-September of last year, we have been forming an inversre H&S bullish-reversal pattern as you can see in the chart above.
It's also interesting to note that, on that right shoulder, we have another mini-inverted H&S formation occurring as well.
With yesterday's price-action slashing through and breaking above the downtrend-resistance (red), I think we are now in a first stage of confirming that Inv. H&S reversal formations.
This could be the major signal that this index is ready to completely turn things around and cultivate brand-new uptrend; and I am not talking about short-term, but the primary-term.
I have reasons to believe that the Transports may be getting ready to make new all-time highs in the coming months.
Following
Interesting because Banks (Financial Select Sector SPDR (NYSE:XLF)) and the Transports have almost identical price-pattern (see my last article on XLF) as you can compare the two charts below.
Banks broke out back in August 5th, and ever since then, the sentiment of this sector stayed bullish; and the Tran is breaking out almost exact same way now.
I think the Transport index is preparing to catch up with other major indices such as S&P 500 (SPX), NASDAQ (COMPQ), and Dow Jones Industrial Average (INDU/DJIA).
Moving On
With yesterday's action, and the first stage confirmation of the inverse H&S formation on the Transports, the "concerning" signal of the weakness on this index is starting to diminish, and it is adding more evidences that the overall market is getting healthier and sustainable for much higher.
Yes, Dow Theory suggests that the Industrial Average & Transport Average must confirm each; and they have not been confirming for a while.
So, we saw the shakedown (weakness, yes, but there were no signs of CRASH) in the overall market in 2015-2016, but the market shook it off and many indices made new all-time-highs recently.
I believe the Transports are now getting ready to do just that; come out and make a new all-time-high, and confirm the Industrial Average.