The old leader, the Transportation index remains weak. It has completely failed to confirm the rally in the Dow'30 index.
Whether you hold a primarily bullish or bearish outlook for the rest of 2012, it has to be acknowledged that the Tranny is still warning of a potencial further wave lower later this year.
Transports, daily, rainbow
Absolutely no sign of the tranny participating in the rally that the Sp'500/Dow'30 are still experiencing. From a MACD cycle perspective, the tranny is primed to rollover and go negative cycle early next week.
Along with all other indexes, the tranny soared after the June low, putting in a hyper rally from 4800 to 5300 is just over two trading weeks - a very impressive performance. Yet, since late June, the tranny has been putting in a very consistant series of lower highs. Note, that so far, we're not seeing lower lows. I would argue this lack of lower lows is probably due to the strength still being seen in the other indexes.
Bearish downside target for the transports in early autumn remains somewhere in the 4400/4600 level. That would equate to around sp'1200.
More QE before 2012 concludes
Considering 'everything' going on right now, and the key issue that the Bernanke will be looking to do QE3, I find it hard to imagine the sp breaking under 1200.
It also seems likely that with the US elections soon, the Bernanke will delay QE until the FOMC* of Wed' Dec'12. That is certainly a long way off right now, and its arguably too close to Christmas to inspire much of a euphoria for the US consumer.
*There is an October FOMC - Wed' Oct'24, but I find it almost impossible for the Fed to initiate anything then, whilst so close to the election. Unless the markets are 'upset' for whatever reason, I'd guess the committee will wait until mid December.
Eyes on the tranny
So, as I been saying for months, keep your eyes on the transports. What will be important at the end of this month, will be whether the tranny gets a monthly close under the big 5000 level. If we do, then that would be suggestive of weakness in the wider market, with a further wave lower in Sept/Oct. Whether you want to call that a wave'C, or a 3, doesn't matter. What does matter is whether the transports will play catch up to the other indexes that are still rising, or whether its going to lead the way down.
Good wishes from London