Today I have a group of charts that I think will help me explain my thought process here. We’re keeping this very simple.
The first thing that stands out is the breakout to new all-time highs for the Dow Jones Industrial Average that has not yet been confirmed by the Dow Jones Transportation Average. This rejection in January and failure to exceed those former highs is worrisome. If this market was as strong as some of the other indicators have/had been pointing to, then we should have seen a breakout by now. Here is the Dow Jones Industrial Avg:
Click on Charts to Zoom in
And here is the Dow Jones Transportation Average getting rejected hard last month:
Look at the S&P500 getting to our 3300 target. We don’t want to own stocks if we’re below 3300 in S&Ps. It’s that simple:
Look at the Dow Jones Composite Index achieving a similar upside objective:
I went into detail last week about how important this 169 level is for the Russell2000. If you have not read that, I encourage you to go back and study it. This is something you’ll see again in future markets and it’s important to really understand the reason why it’s so important. The supply and demand dynamics at play are very powerful. If we’re below 169 in $IWM, this is a fade. We do NOT want to be long Small-caps if $IWM is below 169. It’s the exact same overwhelming supply that we saw at the beginning of October 2018:
If we’re below 160 in the Russell2000, then things are much worse that we think. If you’re seeing $IWM in the 150s, there are bigger problems out there which will take longer to resolve: