I think now is probably a good time to bring up the Dow Jones Transportation Average running up into its May highs. These fresh closing highs in trannies got all the Dow Theorists pumped up last week as they finally confirmed the new highs that the Industrials had already been making. But what you don’t hear much these days is the big underperformance for Transports lately. The relative strength the group had been showing this year peaked all the way back in March, believe it or not.
But why am I really worried up here? Well, it just bothers me when new highs are made that can’t hold for more than a day or two, especially when they’re all-time highs, as was the case in Transports. Here is the daily bar chart showing what just happened:
Notice the bearish divergence that has been developing throughout the year as prices have rallied; the relative strength index has not confirmed. But more problamatic might be the weekly chart. Look at the same higher highs, but more bearish divergences in RSI:
Failed breakouts scare the heck out of me as it is. But when they come along with bearish divergences on multiple timeframes, forget it. We’ll need to see new highs in price very soon to invalidate any of these bearish developments.
Tags: $IYT $DJT $TRAN $DJIA $DIA