Tuesday, April 01, 2008

Transports manage successful back test

Monday's quiet trading did turn up one key positive; the back test of former resistance-turned support of the Dow Jones Transportation Average ($TRAN). The move was accompanied with a bullish hammer on higher volume, giving two more ticks in the bull column. Stochastics are on a 'sell' from overbought levels, so it could take a test of the 50-day MA to work a more solid bounce and reset stochastics.

This strength should reflect itself in the Dow index with a break of January-April resistance. Positive money flow suggests accumulation:

Can the semiconductor index be a proxy for the Tech averages? The semiconductor index is loitering around its 50-day MA having traded sideways since January. The relative difference between the 50-day and 200-day MAs has narrowed from its max 20% deficit suggesting the worst is behind this index. But unlike the Nasdaq 100, it has failed to break past its 50-day MA. Technicals are neutral-to-bearish so there is little indication that it could do this soon. Without confirmation, the breakout in the Nasdaq 100 will fail (just as moves in the Dow need the support of the Transports as per Dow Theory).