Dow Transports appear to have held up. Other major indexes continue their up-trends. SPY challenging resistance again.
While the QQQ remains in short and longer term up-trends, I am dubious very short term because the actions of the daily technical indicators I follow are not consistent with the market’s bounce at the end of last week. During the beginning of the rise in the QQQ that began around April 19 (A) the daily 12.26.9 MACD was rising above its signal line as shown by the histogram’s rising and turning black (B). Similarly, the 10.4 stochastic was rising above its 10.4.4 signal line (C). These 2 short term indicators were strengthening along with the QQQ’s rise. Compare that pattern to last week’s action. While the QQQ started back up (D) the MACD histogram declined and turned red (E) and the stochastic declined (F). This bearish divergence between the action of the QQQ and these 2 indicators suggests to me that Thursday’s and Friday’s rises in the QQQ may have been the proverbial dead cat bounce and should not yet be trusted. (The DIA and SPY exhibit the same divergence.) Of course if these indicators reverse up this week, I might jump back on the train.
Meanwhile the GMI is at 5 (of 6) and still on a Green signal.
I am almost 100% cash in my trading accounts. My little voice said “this is too easy,” on Tuesday, a reliable signal for me, typically occurring at market tops, reflecting the fact that most of the stocks I follow were rising unusually fast. This weekly chart of the Dow Transports shows it to be right at a possible Head and Shoulders top neckline. Will it hold?
The daily RWB pattern of the Dow 30 industrials is now gone, with a 0/0 pattern. This means the Index closed (dotted line) below all 12 Red and Blue averages. The up-trend will likely resume when it has a 6/6 reading again. Sell in May may work this year.
Dow Theory is a famous system for diagnosing the market’s trend. One of its two components, the Rail or Transportation Index, seems to be showing a possible head and shoulders top pattern. While in this digital oriented economy, the transports may have lost their importance as an indicator of economic activity, a lot of goods and commodities are still moved by train and plane. While the growth tech stocks are still going strong, the weakness in this transportation index may bear watching. Here is the weekly chart of the Dow 20 stocks.The index is down 7 of the last 10 weeks with some large declines coming with volume spikes. It has closed below the six red and and six blue line daily RWB averages, not shown (0/0) The index has now closed back below its critical 30 week average (red line). We need to watch the neckline (purple line). A close below this line might be a sign of significant weakness.
Meanwhile, the QQQ still looks strong in this daily RWB chart (12/12/6/6).
The GMI is now 5 (of 6) and Green.