AIRLINES LEAD DOW TRANSPORTS TO SEVEN MONTH LOW -- SEVERAL AIRLINE STOCKS BREAK 200-DAY AVERAGES IN HEAVY TRADING -- RAILS AND TRUCKERS ARE ALSO IN DOWNTREND

DOW TRANSPORTS FALL TO SEVEN-MONTH LOW... The chart picture for the Dow Tranports continues to weaken. Chart 1 shows the Dow Jones Transportation Average falling nearly 2% today and dropping to the lowest level since last October. It also fell further below its 200-day moving average. Although the rails and truckers fell today, airlines were by far the biggest losers. Chart 2 shows the Dow Jones US Airline Index plunging more than 8% to the lowest level in six months, and falling below its 200-day average. So did several airline stocks.

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Chart 1

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Chart 2

AIRLINES PLUNGE BELOW 200-DAY LINES... Airlines stocks had a terrible chart day. Chart 3 shows United Continental Holdings (UAL) plunging 10% and falling below its 200-day moving average (in massive selling). Charts 4 and 5 shows similar damage done to American Airlines (AAL) and Southwest Airlines (LUV). Chart 6 shows Delta Air Lines (DAL) losing more than 5% in heavy trading. It is also bearing down on its 200-day moving average.

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Chart 3

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Chart 4

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Chart 5

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Chart 6

RAILS AND TRUCKERS ALSO WEAK ... The chart pictures for rails and truckers don't look any better than the airlines. Chart 7 shows the Dow Jones US Trucking index trading below its 200-day average and close to a new seven-month low. They fell nearly 2% today. Chart 8 shows the Dow Jones US Railroad Index in a clear downtrend. The growing divergence between the economically-sensitive transports and the rest of the market is truly amazing -- and worrisome.

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Chart 7

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Chart 8

DOW DIVERGENCE... The Dow Theory holds that, in a healthy uptrend, the Dow Industrials and Transports should move up together. The idea is that the industrials make the goods that the transports move. An upside breakout in one that isn't confirmed by the other is suspect. Chart 9 shows the growing negative divergence between the Dow Industrials and the Transports since the end of 2015. While the industrials (black line) have risen 1.6% to a new record, the transports (blue line) have formed a pattern of "lower highs and lower lows" to lose -7.5%. That's a very big divergence.

Chart 9

TRANSPORTATION WEAKNESS ISN'T A GOOD SIGN ... Chart 10 shows how big a divergence exists between the two Dow Averages. The blue line in Chart 10 plots a ""relative strength ratio"" of the Dow Transports compared to the Dow Industrials (flat black line). To the upper right, the transport/Industrial ratio has fallen to the lowest level since last October, and is the biggest drop in three years. The ratio shows that the transports have done better than industrials since the 2009 bottom (240% versus 160%). The transports also did better than the industrials since the end of 2012. The economically-sensitive transports usually do better in an uptrend. They usually do worse during a market downturn (like 2008) or a downside correction (2011 and 2012). The downturn in the ratio during 2011 led to a 20% market correction. Continued weakness in 2012 led to the market's last 10% correction. It was all uphill in the ratio from the end of 2012 until the start of 2015. The transport/industrial ratio has broken a rising support line extending back to the end of 2012. At the very least, that's a caution signal for the industrials which closed today just shy of another record. It's possible that this time will be different. In the past, however, that big a divergence between the two Dow Averages usually led to some kind of a correction in the other.

Chart 10