Any weakness in the Transportation Index
near current levels would indicate investors and traders believe the global
economy may continue to contract going forward and may be an ominous sign for the
global stock markets.
The Transportation Index is a measure of the current expectations related to shipping, trucking, trains and all measure of forward expectations for goods, products and raw materials to be moved across nations, seas, states, and locations. When the economy is gaining strength, we typically expect to see the Transportation Index moving higher. When the economy is weakening, we typically expect to see the Transportation Index moving lower.
Since the peak in September 2018, the Transportation Index has moved much lower to establish a base near $8625 in December 2018. After that base formed, a series of price rotations pushed the Transportation Index up to $11,148, where it peaked, then began to trail a bit lower since May 2019. Our concern is that the Support/Resistance level, highlighted by the GREEN rectangle on this Weekly chart, represents a critical historical price that must be breached before any renewed strength in the global markets will be seen.
After the G20 meeting, last weekend, and the rally in the US stock market on Monday, we were a bit surprised that the Transportation Index failed to move dramatically higher following the global markets. This leads us to believe investors were taking advantage of a pricing issue related to the G20 and US/China trade war news that was not rooted in strength seen in the global economy. In other words, buy the rumor, sell the news. It would appear the rumor hit the markets Sunday in Tokyo and the news hit the US markets on Monday.
We talked about the G20 meeting results and how G20 will move gold and the US stock indexes.
Skilled technical traders already know we
must be cautious near these current all-time highs. Volatility can increase dramatically on news
or other earnings data which may drive prices higher or lower over the next few
weeks. As we start July (Q3) 2019, we
should be preparing for earnings data to be released over the next 30+ days as
well as continued news related to global trade issues. Additionally, the items which will be sold
for Christmas and the holidays are already being shipped across the globe and
being distributed to warehouses over the next few months prior to the start of
the holiday season.
Historically, July through September are somewhat weak for the Transportation Index. Overall, the Transportation Index loses approximately 500 to 600 points over this 90-day span with a range (potentially) of over $3000 points in volatility. Bullish trending strength returns in October and November where the Transportation Index typically rallies approximately $5000 pts with a volatility range of about $7000 points. These historical trends suggest we could see quite a bit of volatility over the next 90 days with a decent chance at seeing a downward price move targeting recent December 2018 lows.
In previous articles, we’ve suggested a simple trade setup technique we use to identify entry and exit points – the 100% Fibonacci Extension Move. If this move holds true for the Transportation Index, then a move to levels near $8250 is about to unfold based on the move from Sept 2019 to Dec 2019. It would make sense that this move would likely happen between now and September 2019 – followed by a solid rally into the end of 2019 as our historical data suggests.
Now is the time to stay on top of these
moves and to target the opportunity these bigger price rotations provide for
technical traders. Simply put, we have
just described a downside price move of about $2000 points in the
Transportation Index followed by an upside price move of over $4000 to $5000
points. You don’t want to miss this one,
I can tell you that huge moves are about to start unfolding not only in real estate, but metals, stocks, and currencies. Some of these super cycles are going to last years. Brad Matheny goes into great detail with his simple to understand charts and guide about this. His financial market research is one of a kind and a real eye-opener. PDF guide: 2020 Cycles – The Greatest Opportunity Of Your Lifetime
As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles. I believe I have a good pulse on the market and the timing of key turning points for both short-term swing trading and long-term investment capital. The opportunities are potentially massive and life-changing if handled properly.
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Equities Contributor: Chris Vermeulen
Source: Equities News