The Dow Transports should be watched at these levels for important clues

The Dow Transports have now met both the triangle target on the daily chart, as well as a significant Fibonacci level on the monthly chart. That information alone doesn't tell us what level of a rally we can expect, but it does tell us to watch this index closely for clues to the health of the overall markets. Don't be under any illusions - the transports do not move in lockstep with the broader equities indices, and so there are times when a high or low in the transports comes before or after a high or low in the other indices. [Witness the fact that the transports remain above their 2002/2003 lows, unlike the industrials (shown in the last chart below). For that matter, the chart pattern on the transports' monthly chart prior to 2007 does not even look very much like that of the Dow Jones Industrial Average. So we cannot expect one index to dictate the movements in the other. Nevertheless, the transports do measure the pulse of the economy to some extent and should be watched for that reason alone. Also, Dow Theory still holds some sway among analysts, who will be looking to see over time how this level may correspond to similar moves in the industrials.




I'll be very curious to see whether the transports can mount a significant rally from these levels. If so, that may bode well for the other indices, although it certainly may be weeks or months before those other indices reach a significant low that can provide good support. So for now, it's just a matter of observing whether the transports are able to move above significant levels like their 200-month moving average at 2940. There are interesting possibilities raised by the monthly chart from an Elliott Wave perspective - possibilities along the lines of the transports being able to move significantly higher. So I'm cautiously optimistic on the transports for now.

Here's a chart of the IYT, an exchange-traded fund for the transports. Most swing traders will be looking for a confirmation pattern of a classic trend reversal before trying to swing trade the long side. Generally these involve a solid movement up, followed by an orderly pullback and then a continuation movement in the direction of the new expected trend. Naturally it will be several days before we can confirm such a pattern.