The chart below illustrates just how close we are to some volatility. Before we continue I should, however, clear something up ... just because I firmly believe, based on Dow's theory, that both averages and thus the general markets will make strong moves down if the Dow reaches another new high (and the transportation average does not), this DOES NOT indicate a reversal in the major, long-term underlying trend which has been UP since 2008. In order for this major trend to be violated, we would need to see new decade lows in both averages.
In other words, the Dow would have to surpass the 2009 low of 6,626.94 while the transportation average simultaneously (or roughly simultaneously .. there can be some lag between the indexes) surpasses its 2002 low of 2,027.09. Note that the major trend up wasn't broken in 2009, despite the massive sell-off since the transportation average didn't confirm those multi-year lows that the Dow hit. Make no mistake though, without QE, it would have been "game over." So going forward, if there is another crisis that threatens to bring the market to its knees, further QE will not only be a probability, but a necessity (at least in the eyes of governments as they stand). In this kind of environment, true petrol linked currencies would likely do well (including Canada ... sort of ... Oil sands oil has a MUCH cheaper spot price than WTI or BRENT crude), as well as precious metals like gold and silver, which represent a true store of value. The trick is, as always, knowing when "buying low" is actually "buying low". Things should continue to become clear over the next several days, and weeks.
Peace
