DOW FINISHES STRONG - IWM AND QQQQ LEAD - DOW TRANSPORTS BREAKS AUGUST HIGH - RAILS AND AIRLINES LEAD - TRUCKERS LAG - SHORT-TERM DOW THEORY NON-CONFIRMATIONS LURK
DELAYED POSTING... Wednesday's Market Message was delayed due to a website disruption on Wednesday afternoon. As noted on the status page (click here), we moved back to our old T3 circuits to get back online around 1:30AM. Further developments will be posted on the status page.
BEIGE BOOK HITS A NERVE... Link for todays video. Stocks came out of the gate strong on Wednesday morning as the Dow Industrials raced to around 9575 just before noon. The senior Average then stalled throughout lunch and held above 9550 into the early afternoon. With the release of the Feds Beige Book at 2PM, the Dow promptly dropped a quick 40-50 points. It is simply amazing how quickly information is disseminated. More likely, this appears to be a knee-jerk reaction because the Dow recovered in the final hour. Chart 1 shows the Dow Industrials falling back to broken resistance around 9500. This area turned into support in the late afternoon as the Average bounced in the final hour of trading. This late bounce affirms the first support level around 9500. Chart 2 shows daily candles to capture the medium-term trend, which is clearly up with key support around 9100.
Chart 1
Chart 2
ECONOMIC NOTE... The Beige Book is also known as the Summary of Commentary on Current Economic Conditions. It is published eight times per year and includes reports from all 12 districts. Careful with this one. It is one big economic report. Click here to see it at the Feds web site.
TECHS AND SMALL-CAPS LEAD ... Chart 3 shows a percentage performance chart for the major index ETFs since early July. The Russell 2000 ETF (IWM) and the Nasdaq 100 ETF (QQQQ) are leading the way higher. IWM is up over 21% and QQQQ is up 19% since July 8th. Relative strength in small-caps (IWM) and large-cap techs (QQQQ) is a good sign for the market overall. These two also led the market higher on Wednesday. The Dow Diamonds (DIA) and the S&P 500 ETF (SPY) are not doing too bad either with gains exceeding 17% since early July. The only potential negative is the overbought nature of the current advance. All four ETFs are up over 17% in just two months.
Chart 3
DOW TRANSPORTS BREAKS AUGUST HIGH... With a big surge the last four days, the Dow Transports closed above its August (closing) high to affirm the current uptrend. Looking back, the Average broke triangle resistance with the big July-August surge. Chart 4 shows a consolidation evolving with support around 3600 and resistance at 3800. Todays move above the August (closing) high broke consolidation resistance. The August-September lows mark key support for the medium-term uptrend. In fact, the August-September lows hold the key for many indices and stocks. Short-term, traders should watch the breakout at 3800. A sudden move back below Tuesdays low would throw cold water on todays move. The corresponding ETF is the iShares Transport ETF (IYT).
Chart 4
AIRLINES AND RAILS SURGE ... The Dow Jones Transportation Average consists of four main groups: airlines, air freight, railroads and trucking. As far as I know, there are no corresponding ETFs for these four groups. However, Dow Jones has an Airline Index ($DJUSAR), a Railroad Index ($DJUSRR) and a Trucking Index ($DJUSTK). Air freight is dominated by two companies: FedEx (FDX) and UPS (UPS). Chart 5 shows the DJ US Railroad Index leading the charge with a break above its August highs today. Like the Dow Transports, the August-September lows hold the key to the current uptrend. Chart 6 shows the DJ US Airline Index challenging resistance from the August-September highs.
Chart 5
Chart 6
TRUCKING INDEX LAGS... Chart 7 shows the DJ US Trucking Index trading below its August highs. With the Dow Transports exceeding its August highs, the Trucking Index shows relative weakness because it has yet to follow suit. The overall trend remains up, but I will be watching support from the September-August lows closely over the next few days. A break below these lows would reverse this uptrend.
Chart 7
DOW JONES GROUPS... You can access a full list of available industry groups by searching the symbol catalog for "Dow Jones US". There are over 100 different sector and industry group indices available. Click here to see this list.
FEDEX AND UPS BREAK AUGUST HIGHS... Chart 8 shows FedEx (FDX) leading the way higher with a big move from late June to early September. After an advance from 50 to 72, the stock is up over 40% in less than three months. It is a clear show of strength, but also creates an overbought situation and makes the stock ripe for a correction. UPS (UPS) benefited from an upgrade by JP Morgan today. Chart 9 shows the stock gapping higher on the open. The breakout and gap should be considered bullish until proven otherwise. A move back below 54 would call for a reassessment.
Chart 8
Chart 9
DOW THEORY UPDATE... Chart 10 shows an interesting (short-term) development in Dow Theory. First, lets look at the late August highs. The Dow Industrials forged a higher high in late August, but the Dow Transports formed a lower high for a non-confirmation. With todays advance, the Dow Transports forged a higher high, but the Dow Industrials has yet to exceed its late August high. Failure by the Dow Industrials to exceed its late August high would be a non-confirmation. This is not a Dow Theory sell signal, but it is a sign of weakness when one Average fails to confirm the other. Even so, the Dow Transports and Dow Industrials are both a ways from a Dow Theory sell signal, which would occur if both break below their August lows.
Chart 10
