[Chart Of The Week] This Important U.S. Stock Index Is Breaking Out

JC Parets
March 31, 2016

We've just witnessed one of the most epic rallies in the stock market that we've seen in a long time. Remember, this has been dominated by global indexes, particularly Emerging Markets, not U.S. Stocks. We could not be happier to see this rally progress so well as we've been pounding the table to be long since late January. By mid-February, the U.S. and other developed markets put in their bottoms and started to play catch up to the rest of the world. But the underperformance of the U.S. has continued anyway.

Today's Chart Of The Week represents what could potentially be the start of a major structural improvement for U.S. Stocks:

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This is a weekly chart of the Dow Jones Composite Average. This Index tracks 65 companies, including all 30 stocks in the Dow Jones Industrial Average, all 20 stocks in the Dow Jones Transportation Average and all 15 stocks in the Dow Jones Utility Average. This week we are seeing a breakout above the downtrend line from the all-time highs from late December 2014, about 15 months ago exactly:

dja w

Here is a shorter-term view so you can see just how important these level are to this market. Not only are we taking out the downtrend line from the all-time highs in the Dow Jones Composite Average, but this is also resistance from former support levels all throughout last year:

dja

The bullish implications of this index holding on to the recent breakout are something that we do not take lightly, particularly from a structural perspective. Sure, we have had a great rally over the past couple of months, but our short-term upside targets in most of the major U.S. Indexes have been hit over the past week or two. Now we want to let the dust settle and see how these markets react to these levels.

I think this index, which includes the Dow Jones Industrials, Transports, and Utilities is a great way to gauge the true strength of this market. I would argue that the longer this holds above that downtrend line, the more bullish the implications. On the flip side, if this market rolls over and fails to hold on to these highs, then we will have to reevaluate the importance of any of the bullish developments we've seen towards the latter half of the first quarter. If this index is below that downtrend line, I do not want to be long the U.S. Stock Market.

That's how I see it.

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Tags: $DJA $DJIA $TRAN $IYT $DIA $DJU

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