Today the Dow was down over 100 points. Are we surprised? Not one bit!
Also hilarious - only recently are people starting to talk about how bad the economy may be given the nature of the Dow Transportation index and that relationship to the Dow. Ha Ha ... you don't say? Here is what they are seeing.
If you didn't get the idea from looking at the pictures, here it is. Because the Dow isn't confirming the Transportation index, it's assumed that the transportation stocks must be the correct indicator; thus the Dow will follow suit. But wait .... there's the bigger picture; and incidentally our narrow and near sighted markets are not seeing it.
Yes, the US economy is bad ... real bad. But it's also true that all of the bad news may have already been discounted over the summer. After all, the only confirmation we saw over the past several months were the simultaneous lows made by the Dow and Transportation indexes (this has historically signaled a trend reversal - from down to up).
The Transportation index is definitely lagging, and many transportation stocks have been in ferocious bear markets for the past year. But, the index itself hasn't broken support levels since the sell-off in 2011. Hmm. Furthermore, the transportation index has been essentially range trading for the past 4 months.
Hmm again.
Will the transports suddenly spring to life? I think so.
Ok to be fair, if the transportation index ends up breaking support #1, things could get ugly fast. And if it breaks support #2, we may want to already be ducking. As a precautionary risk management measure, I am taking profits on some of my strongest positions, and am limiting my position size on volatile holdings, until it looks like the sell off may be nearing an end. But I am in now way removing myself out of this market completely.
We were way ahead of the mainstream news crowd in our prediction of an imminent pullback, and on our recommendation to take profits while you had them. I must admit that I was starting to get suspicious, and began entertaining the idea that I could be way wrong. Well, I wasn't wrong (this time) - and here we are. I must stress, though, that this looks to be the beginning of a pull back that could see the Dow trade down to 13,000.
So no surprises.
