A major index that is considered to be a leading indicator by both economists
and technical analysts tells us that the broad market is going higher. This
indicator, the Dow Jones Transportation Index, is fundamentally important
because an increase in the transportation of goods by air, sea and land tells us
that the economy is improving. And its accuracy as a technical indicator is
enhanced when its companion, the Dow Jones Industrial Average, confirms the
direction. It is important to study the transports versus other indices to
detect possible divergences since a failure of one to confirm the other can lead
to malaise or even collapse. Note that on April 1, it appeared that the
transportation average jumped to a new closing high while the Dow industrials
failed to do the same. This divergence between the two important indices was a
danger signal. It wasnt until April 21 that the industrials followed through and
confirmed that the bull market was intact. This confirmation of the major
uptrend means that our late December forecast of new highs this year in each of
the major indices is on pace. The Dow is targeted at 12,800, the S&P 500 at
1,400, and the Nasdaqs at 3,700. Another divergence, of sorts, has occurred
between the price of gold and the price of silver. Both are in strong uptrends,
but the iShares Silver Trust (NYSE: SLV ) ran to over 75% above its 200-day
moving average a huge overvaluation before encountering profit-taking. It has
already fallen 16% from its high of just four days ago. A normal correction
could result in a decline to below its 50-day moving average now at $37.76. A
50% correction of the move from its Jan. 25 low of $26.03 to the high of $48.35
would land it at around $37.20 where it could again be accumulated. (For more on
SLV, see the Trade of the Day .) Precious metals move opposite to the U.S.
dollar, which had a slight rally yesterday. But the dollars trend is sharply
lower and Michael Murphy, of New World Investor , who has been accurate in his
dollar/precious metals studies, said yesterday that the dollar could rally for
several days and then fall sharply to around its lows made in 2008. If this
happens, he expects to see another sharp rally in precious metals. Todays
Trading Landscape To see a list of the companies reporting earnings today, click
here . For a list of this weeks economic reports due out, click here . If you
have questions or comments for Sam Collins, please e-mail him at samailc@cox.net
. View Survey
No comments:
Post a Comment