TRANSPORTS AND CYCLICALS LEAD MARKET LOWER -- DOW HITS NEW 2005 LOW -- THAT'S GOOD FOR BEAR FUNDS

TRANSPORTS TUMBLE 3% ... Last Friday I wrote about the Dow Transports falling beneath their 50-day moving average and being pulled down by rails and truckers. I also warned about how weakness in the transports was a negative sign for both the stock market and the economy. As for the market, loss of transportation leadership was just another nail in the coffin of a dying bull market. For the economy, a peak in the economically-sensitive rails and truckers was just another symptom of economic slowing. Today's 3% plunge in the Dow Transports has put it right at its January low and its 200-day moving average. Since the transports and the industrials are both linked to economic activity, it's no big surprise to see the Dow Industrials trading at a new low for the year and under its 200-day moving average. Transports aren't the only economically-sensitive stocks that are getting hammered today. Cyclical stocks are also falling very hard. Chart 3 shows the Morgan Stanley Cyclical Index breaking its 200-day moving average. The only pockets of relative stability are in traditional safe havens like consumer staples, healthcare, and utilities. Cash is still the best defense of all. Unless the market stages a late recovery this afternoon, there's a strong chance that several bear market funds will achieve upside breakouts. Last Friday I recommended purchase of any bear market fund that closed over its January high and/or its 200-day moving average. One that's already done both is the ProFunds Ultra Short OTC Fund shown in Chart 4 (plotted through Wednesday). I suspect there will be bear fund breakouts before the week is out.

Chart 1

Chart 2

Chart 3

Chart 4