The Nasdaq Transportation Index - A Better Dow Theory Index
(I just edited and reposted this. I don' t always spell check or proofread my posts and this one was riddled with mistakes.)
Last week was fun. Victory was snatched from the hands of defeat for the bulls. I think some of the bears were counting their profits a little too far in advance. It is highly unlikely that we would see a substantial market decline in July. Seasonally, that is an extremely low probability. Remember, malaise followed by weakness. But, the speed of last week's rally was very surprising. I think that was about an annualized 400% move in the S&P. I would say we are about out of gas as of today. What happens next will be determined by what happens next. In other words, as I said a few weeks ago, I don't like short term forecasting but rather prefer to take what the market gives. And that is with good reason given my thesis that a short term head and shoulders had developed was kiboshed.
So, this week it appears everyone is bullish again. It's pretty hard for me to be bullish here because the Federal Reserve policy is once again very tight. Sort of wondering out loud, I can't help but wonder if Wall Street is attempting to reflate financial assets with Washington's blessing. Do they believe reflating financial assets will mitigate the wealth problem that has arisen due to in part to the financial market collapse? That really isn't so far fetched if one looks at the Alan Greenspan remark from a recent FT article I posted on here. Greenspan thinks like a central banker, obviously. He believes rising stock markets drive future economic activity re that article. We highlighted the outright ignorance of this position in our post on July 9th. But, there is no doubt in my mind policy makers are desperate. Tax receipts have imploded and the economy is on wooden legs. So could it be a policy tactic? Who knows. But given Greenspan's perspective, it isn't really that bizarre to consider. So, Goldman and others believe they are performing their civic duty by manipulating markets? Haha. That might be fine were wholesale manipulation possible ad infinitum. But, in the end, they will simply make the mess that much larger by encouraging risk taking that is not based on sustainable fundamentals.
So, as we look at the markets assault higher, let's look at a little known index that is highly sensitive to the economy. It's the Nasdaq Transportation Index, ^IXTR on Yahoo Finance. This index is far more representative of the spirit of Dow Theory as subscribed to by Charles Dow that the Dow Transports. In other words, the Dow Transports is a small number of generally large, liquid company stocks that are traded or manipulated by our financial geniuses. The IXTR is less prone to trader and Wall Street gamesmanship because it is composed of far more less-liquid, smaller capitalization equities more reflective of activity in the American industrial economy. In other words, were Charles Dow alive today, he would use the Nasdaq Transportation Index. And, today it is getting smacked pretty hard.
As we look at the NTI on a weekly chart, we see that it hasn't participated in this rally at all. In fact, it would need to rise about 12% to exceed April's high. More importantly, it has not broken out of its downward Standard Error Channels. (We posted prior highlights of the usage and definition of these channels.) This past week's rally was in large, highly liquid stocks or in the case of small capitalization stocks, highly liquid indices such as the Russell 2000 futures.
==>> Traders
Last week was fun. Victory was snatched from the hands of defeat for the bulls. I think some of the bears were counting their profits a little too far in advance. It is highly unlikely that we would see a substantial market decline in July. Seasonally, that is an extremely low probability. Remember, malaise followed by weakness. But, the speed of last week's rally was very surprising. I think that was about an annualized 400% move in the S&P. I would say we are about out of gas as of today. What happens next will be determined by what happens next. In other words, as I said a few weeks ago, I don't like short term forecasting but rather prefer to take what the market gives. And that is with good reason given my thesis that a short term head and shoulders had developed was kiboshed.
So, this week it appears everyone is bullish again. It's pretty hard for me to be bullish here because the Federal Reserve policy is once again very tight. Sort of wondering out loud, I can't help but wonder if Wall Street is attempting to reflate financial assets with Washington's blessing. Do they believe reflating financial assets will mitigate the wealth problem that has arisen due to in part to the financial market collapse? That really isn't so far fetched if one looks at the Alan Greenspan remark from a recent FT article I posted on here. Greenspan thinks like a central banker, obviously. He believes rising stock markets drive future economic activity re that article. We highlighted the outright ignorance of this position in our post on July 9th. But, there is no doubt in my mind policy makers are desperate. Tax receipts have imploded and the economy is on wooden legs. So could it be a policy tactic? Who knows. But given Greenspan's perspective, it isn't really that bizarre to consider. So, Goldman and others believe they are performing their civic duty by manipulating markets? Haha. That might be fine were wholesale manipulation possible ad infinitum. But, in the end, they will simply make the mess that much larger by encouraging risk taking that is not based on sustainable fundamentals.
So, as we look at the markets assault higher, let's look at a little known index that is highly sensitive to the economy. It's the Nasdaq Transportation Index, ^IXTR on Yahoo Finance. This index is far more representative of the spirit of Dow Theory as subscribed to by Charles Dow that the Dow Transports. In other words, the Dow Transports is a small number of generally large, liquid company stocks that are traded or manipulated by our financial geniuses. The IXTR is less prone to trader and Wall Street gamesmanship because it is composed of far more less-liquid, smaller capitalization equities more reflective of activity in the American industrial economy. In other words, were Charles Dow alive today, he would use the Nasdaq Transportation Index. And, today it is getting smacked pretty hard.
As we look at the NTI on a weekly chart, we see that it hasn't participated in this rally at all. In fact, it would need to rise about 12% to exceed April's high. More importantly, it has not broken out of its downward Standard Error Channels. (We posted prior highlights of the usage and definition of these channels.) This past week's rally was in large, highly liquid stocks or in the case of small capitalization stocks, highly liquid indices such as the Russell 2000 futures.
==>> Traders
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