THE DOW TRANSPORTS ARE ALSO STRUGGLING AT 50-DAY AVERAGE -- BUT MAY BE FORMING ASCENDING TRIANGLE -- THE DOW INDUSTRIALS MAY BE FORMING BULLISH TRIANGLE OF ITS OWN -- THAT WOULD FIT INTO ELLIOTT WAVE FOUR CONSOLIDATION PATTERN
DOW TRANSPORT UPTREND IS ALSO STALLED AT 50-DAY AVERAGE... Yesterday's message showed the Dow Industrials falling below their 50-day average. Today's message shows the Dow Transports doing the same. The daily bars in Chart 1 show the Dow Jones Transportation Average backing off from a test of the 50-day average (blue line). It also met resistance along its late February peak (flat upper line). That's not necessarily a bearish development. For the pattern to turn negative, the transportation index would have to fall below the rising trendline drawn under its February/ March lows. All we can say at this point is that its uptrend has stalled. And that it has to climb back over its March high to put its uptrend back on course. A case could even be made that the transports are tracing out an "ascending triangle" which is normally a bullish pattern. [An ascending triangle has a flat upper line and a rising lower line]. And what the transports do from here could effect the Dow Industrials. That's because the two Dow Averages normally trend in the same direction (or at least they should). The 60-day Correlation Coefficient between the Dow Industrials and Transport is .84. That means that an upside breakout by the transports would also be good for the Dow Industrials.
(click to view a live version of this chart)
Chart 1
DOW INDUSTRIALS MAY BE FORMING A TRIANGLE OF THEIR OWN... The two convergng trendlines in Chart 2 show the Dow Industrials forming a potential "symmetrical triangle" (which has one trendline falling and the other rising). The falling trendline on top is drawn over its January/February peaks. The rising trendline is drawn under its February/March lows. This is also a continuation pattern which favors an eventual upside breakout. The key to the resolution of the pattern is which of the two trendlines is broken first. A break of the lower line would be negative, while a break of the upper line would be positive. Technical odds favor the upside which would also put the Dow decisively above it March high and 50-day average. A Dow Industrial upside breakout would be more bullish if it's accompanied by a similar upside breakout by the Dow Transports.
(click to view a live version of this chart)
Chart 2
FOURTH WAVES ARE OFTEN TRIANGLES... My February 21 message carried the headline: "ELLIOTT WAVE ANALYSIS SUGGESTS MARKET MAY BE IN WAVE FOUR CONSOLIDATION WITH ONE MORE UPWAVE TO COME". The message explained that market uptrends normally have five waves which break down into three upwaves (1,3,5) and two corrective waves (2 and 4). The message described a possible wave four consolidation of the upleg that started in February 2016. It further suggested that wave four consolidation patterns are often "triangular" in shape. That would seem to describe the pattern being formed by the two Dow Averages shown here. That analysis, however, carries both good and bad news. The good news is that wave four consolidation patterns are usually resolved on the upside. The bad news is that a fifth upwave is often the final stage in a bull market. Chart 3 shows the Dow Jones Composite Average also forming a potential "triangle" formation. [The DJA includes stocks from the three Dow Averages (including utilities)]. To fulfill its bullish potential, however, the DJA needs to break the upper resistance line and close decisively above its 50-day moving average and its March high. It should also be noted that the Dow Industrials have been the weakest of the major U.S. stock indexes. It needs to start catching up if the current stock uptrend is to be maintained.
