Anyway, the reason I mention this is the transports aren't looking that good right now.
Let's start with the weekly chart:
Click for a larger image.
There are two key points.
-- Prices have broken a long upward sloping trend line and
-- The MACD is about is give a sell signal.
Let's add the daily chart:
Click for a larger image
First notice the chart has probably printed a double top. This is a reversal formation -- one of the main chart events we look for.
Secondly, I've broken the chart down into two boxes box A and box B. Notice that box B is technically weaker than box A -- both the MACD and RSI have printed weaker numbers.
Third, notice point C. Prices have moved through all the EMAs and a trend line. Also note the 10 day EMA has moved through the 20 day EMA -- another bearish development.
Yesterday I noted that several broad markets are sending sell signals. The transports were one of these markets. Putting all of these elements together it looks like we are heading for a correction. However, it's very important to remember this is a technical read; it is one side of the equation. It is not an analysis of the fundamental side of the equation. We still have a very important GDP print tomorrow which could completely reverse all of this information.
My best guess about what is happening is traders are taking some money off the table in anticipation of a weak GDP print tomorrow. They've made some great profits; now its time to recognize some of those profits.
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The economic numbers over the last month are beginning to trouble me. It appears that the economy began growing again in May and that we should have positive GDP growth reported tomorrow. However, the signs are that the economy may be beginning to contract again. Home sales, commercial real estate and consumber confidence all took a dive last month. I suspect that the economic growth over the summer will mean a better job outlook this fall, but that unemployment will be back on the rise early next year, possibly falling into a new recession or a third downward leg to the Great Recession. Higher energy prices and toxic assets in banks remain barriers to economic recovery. I don't believe the economic recovery is sustainable without more fiscal stimulis.
Should the economy fall into a new recession next year, that will only be the second recession to begin under a Democratic Administration since 1950. In contrast, nine recessions have begun under Republican Adminstrations since 1954.
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