Transports Stall Near Support Break

08/16/07 02:09:27 PM

by Arthur Hill

After breaking support with the sharp decline, the Dow transports stalled over the last seven days, and it looks like a continuation pattern is forming.

Security: $DJT
Position: Sell

On the daily chart (Figure 1), the Dow transports surged to a new high in mid-July but came down just as fast with a sharp decline at end of the month. The decline broke support from the May-June lows and the average stalled around this support break. There is also support around 4950 from the 200-day moving average.

FIGURE 1: DJTA, DAILY. The Dow transports surged to a new high in mid-July, but came down just as fast with a sharp decline at the end of the month.

Graphic provided by: Telechart 2007.

Despite the ability to firm around support, the technical damage has already been done. The average forged a lower low in August and the 50-day moving average turned down. A rising or flat moving average would indicate a current uptrend. However, a falling moving average suggests that a downtrend has started and this favors further downside.

Turning to the 60-minute chart, we can focus on the current consolidation for the next signal (Figure 2). The average formed a triangle over the last seven days with support at 4870 and resistance at 5050. This pattern would look like a pennant on the daily chart. Triangles are neutral patterns and pennants are continuation patterns. I am looking for a triangle break for the next signal. A move above 5050 would break triangle resistance and keep the bulls alive. A move below 4870 would break triangle support and argue for a continuation of the July-August decline. The downside target would be support from the March lows.

FIGURE 2: DJTA, HOURLY. The DJTA formed a triangle over the last seven days with support at 4870 and resistance at 5050.

Graphic provided by: Telechart 2007.

I am also showing moving average convergence/divergence (MACD) on the 60-minute chart and momentum is turning lower. The indicator formed a lower high this week and moved back into negative territory on Tuesday. Short-term momentum is breaking down again and this also favors a support break at 4870.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Transports Stall Near Support Break

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