On the left hand, the DOW transportation monthly chart, which clearly generated a sell signal by breaking out of an ascending triangle formation. The first target is the 62% retracement at 3300, which is also a good support area. We are in a different cycle point for the TRANS, which lags the overall trend but had on the way up also quite an outperformance, since it made 150% from the low of 2003 and does still outperform so far by dropping less (27%). But, as in all market trends, we have sector rotation and this sector has a defensive character so far, but I am afraid it will pick up speed in the coming months, since we have a huge build up of inventories. Less goods and people will be moved around going forward also due to cost cutting and the sharp drop in energy prices, which does initially benefit the TRANS. However, at a near point the benefit of better margin will be overshadowed by less demand. The stars in the Trans were the railroad stocks favored and promoted by Mr. Buffett but that is not a winning bet anymore, since planes and especially trucks are much more competitive again and the demand for goods will lesson by all means within a more competitive scenario. Here you might keep selling rallies - we will look into single members the coming week.
Sunday, October 12, 2008
DOW Transportation technical outlook
On the left hand, the DOW transportation monthly chart, which clearly generated a sell signal by breaking out of an ascending triangle formation. The first target is the 62% retracement at 3300, which is also a good support area. We are in a different cycle point for the TRANS, which lags the overall trend but had on the way up also quite an outperformance, since it made 150% from the low of 2003 and does still outperform so far by dropping less (27%). But, as in all market trends, we have sector rotation and this sector has a defensive character so far, but I am afraid it will pick up speed in the coming months, since we have a huge build up of inventories. Less goods and people will be moved around going forward also due to cost cutting and the sharp drop in energy prices, which does initially benefit the TRANS. However, at a near point the benefit of better margin will be overshadowed by less demand. The stars in the Trans were the railroad stocks favored and promoted by Mr. Buffett but that is not a winning bet anymore, since planes and especially trucks are much more competitive again and the demand for goods will lesson by all means within a more competitive scenario. Here you might keep selling rallies - we will look into single members the coming week.
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