Written by William Kurtz
The Dow Industrials Index climbed smartly this morning, but leveled off during the afternoon and closed below the High of the day, and still is below its all-time High of September 19. The Dow is now inside a range in which it could peak and reverse at any time. Our current Indicator readings show a strong resemblance to their patterns of September 19. I think it is only a matter of time before the balloon bursts.
In the S&P 500, the October 15 Low from which the current rise sprang was marked by a bullish “Hammer” trend-reversal pattern, which confirmed the other bullish Candlestick trend-reversal patterns which appeared in the Dow Industrials at the same time. Today, the S&P 500 moved up smartly until about 2 o’clock, in similar fashion to the activity in the Dow Industrials, but shaded off during the rest of the day and closed below its intraday High and still below its September 19 High. The same story obtains in the NASDAQs, although they saw net buying activity late in the trading day. The NASDAQs have not surpassed their respective September 19 Highs, either.
Compared to the Dow, the S&P 500, and the NASDAQs, the NYSE Composite remains far below its peak, which occurred on September 3.
It is the Dow Transports which provides the mystery of the day. It posted a new all-time High and Closing High last Tuesday, October 28; and then yesterday, Wednesday October 29, it posted yet another new all-time High – but could not hold on to it, and closed lower on the day. And then today, the Transports fell apart further, tore through a gap, rallied slightly toward the Close, but closed Down 83 points on the day.
In the Dow Transports, late price activity on October 28 and early price activity on October 29 cooperated to leave behind a skewed “Evening Star” bearish trend-reversal warning pattern – one which does not appear in the standard “Candlestick” literature, but one which we recognize as a variant of an “Orthodox” Candlestick pattern and, therefore, one which probably carries the bearish “DNA” of its parent.
Furthermore, the middle bar of this three-bar pattern was a “Doji,” meaning that the Open and the Close of that bar were the same, or very nearly so. The implication of the “Doji” is bearish when it appears at the top of an extended price rise, as is the case in the Transports.
The result was a doubly-bearish trend-reversal warning pattern – which is working out well, so far.
Among all of the several stock Indexes which I cover, it is the Transports alone which has built this downhill-sloping “ski run.”
What can be ailing the Transports? It probably isn’t an increase in the cost of Diesel fuel and Jet-A, because prices of Crude at New York have been at about $81-$82 for 13 days in a row. Within the individual components of the Index itself, the only substantial movers were C. H. Robinson Worldwide (NASDAQ:CRHW), Down $2.88 (4%), and Con-way Inc. (NYSE:CNW), down $2.81 (6.2%). Perhaps those were enough to throttle the Index. The question then becomes: What’s the problem at CNW? It was down 2.81 for the day at the close and then was up 2.81 in after-hours after the earnings were announce with a $0.05 earnings beat on revenues as expected. On Wednesday CHRW also beat by $0.05 on earnings, with a 4.5% y-o-y gain in revenue, slightly below expectations. But it didn’t bounce.
What is making the Transports so nervous?