DOW APPEARS HEADED TO 10,000 -- RISING OIL CONTINUES TO HURT TRANSPORTS

RISING OIL IS HURTING TRANSPORTS THE MOST ... It's normal to expect that record high oil prices are hitting the fuel-sensitive transportation stocks the hardest. Last week I showed the Dow Transports falling to a new monthly low after breaking their moving average lines. With crude now trading over $60, the transports are deteriorating even more. Chart 1 shows the Dow Transportation Average bearing down on its early May low near 3348. Given the fact that the June rally fell so short of its March peak (creating a lower high), I think there's a strong chance that the May low probably won't be able to hold the transportation decline. Needless to say, a new 2005 low would put the Dow Industrials under more pressure.

Chart 1

DOW IS HEADED TO 10K... The Dow Industrials are following the transports lower. Chart 2 shows the recent technical deterioration in the Dow. On Friday it closed beneath both moving average lines. Downside volume on Thursday and Friday was the heaviest in two months. And the daily MACD lines have turned down for the first time since April. It looks to me like the Dow is headed toward its 2005 lows in the 10000-10100 range. What it does from there will help determine the seriousness of the current downturn. I doubt if the market is going to be able to withstand crude oil in the $60's. But that's where we are today.

Chart 2