The Dow Jones Transportaion Index is a trusted leading economic indicator that today consists of 20 stocks of Railroad, trucking and Airlines companies. The transports often show signs of an economic recovery before other sectors since it measures moving raw materials from A-Z….long before the goods make it to the shevles in the stores. If our economy is truly turning the corner the Transports should continue higher. From a techncial perspective the Dow Jones transports have rallied back to an important resistance level. A look at the monthly chart shows that the market just below a level that was the lower end of the trading range in 2007 & 2008. This level was stong support at one time now is viewed as resistance.

The daily chart of the transports shows that a 3-month consolidation or “money box”  pattern has formed just as prices reached this area of long term resistance. A breakout of a money box that is on accompanied by a long bar and strong internals can set the stage for an extended rally. However, breakouts that fail and reverse iback into the money box can lead to a retracement back to the lower ends of the pattern. The DJT have just broken out of this pattern and are right at the monthly resistance noted above and a 1.27 extension of the recent consolidation. In light of the fact that the Transport are testing long term (monthly) resistance for the firt time, failures at current levels could trigger deeper retracements.  The success or failure of the recent breakout in transportation index needs to be monitored closely by all stock index traders.  

 Kevin Riordan

This entry was posted on Sunday, December 6th, 2009 at 5:35 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.