There are certain patterns in markets that get me pumped up. One of them is definitely the long consolidation that fails to breakout in either direction for a sustained period of time. The way I look at it, when something trades in a prolonged, tight range, it’s building momentum for a potentially ultra-powerful move. The breakout in the Dow Jones Transportation Average these past few months is the perfect example. I wrote about the setup in late November for MarketWatch and Transports are up a hefty 18% very quickly. The size of the move is great and everything, but it’s the relentless manner in which it rallied that really proves the point.
On a shorter time frame, Indonesia looks like it might be able to do something similar. I can’t help but notice so many of the similarities between the two setups. The first chart shows what the Dow Jones Transportation Average looked like, and then what it did. Look at the long base that it developed as other markets were already soaring to new highs. Transports had been forgotten about by the time November came around:
The result was great. But more importantly, it is the psychology behind that pattern that I want to emphasize. Now take a look at what Indonesia looks like on a little bit of a shorter term time frame. This is a daily chart of the Market Vectors Indonesia Index:
To me it’s the same setup. Maybe $IDX doesn’t have the violent move higher that the Transports just put in. But the potential is certainly there. Indonesia represents one of the top 7 emerging markets behind the BRICs and Mexico, so it should be interesting to see how this one behaves relative to the rest of the group.
I thought this was a cool comparison.
Tags: $IDX $DJT $IYT $EWW $EEM $EIDO