Read my previous post. I was making the case for the Bear Market. But, I found something that amazed me, and I had to end just then. For a long time, the Dow Transports had been signalling that all was not well, and, in fact, many had said it had called the Bear Market way back when, when it diverged. I got that, and I was right on top of that, as I knew it was a ‘fair warning’ that all was not well looking ahead.
So, yesterday, as I was writing up my previous post, I went to the Dow 20 Transports and got a real shock when it was clear it had peaked back in ’14, and had been on the decline since then, until this past January the 20th. But, it has been rallying since then, cleared its 200-day, and has been testing it for support these past 6 trading days! And, the forward-looking EPS line for these 20 issues has been strengthening well, too! I have to say that this has arrested my attention, and really has me to have to have some doubt concerning my bearish opinion, as the Dow Transports, along with the large-cap indexes, are striving mightily to revive their previous Bullish appearance… and, with the Transports now doing the same… this puts a whole new light on things I had not previously seen.
I would do this with this new intelligence… we are due for a correction from this current rally. It’s certainly due, and I wouldn’t buy anything until after one. But, the whole nature of what might unfold, going forward, concerning any further rally effort, or however the next correction should unfold, needs to be considered as possibly being… not necessarily Bear Market action, as I have been arguing for all along, but the possibility also now exists, that the Bull truly is making its way of reviving, to continue on and go higher! The Dow Transports would be signalling such a possibility!
What makes this seem somewhat likely is the strange rally in emerging mkt debt, as well as higher-quality corporate bonds. It makes no sense that the market appears to be uncoupling from the price of oil, if oil’s low price is going to destroy so many companies, nations, their stock and their debt. It can only mean that the ‘belief’ at this time is that the oil price related debt-bomb that is actually going off right now, will not be so severe as to sufficiently harm other areas of the economy and markets as to take them down, too. And, that, instead, the economic scenario is actually going to improve, by side-stepping around all of that energy mess… the idea being that the lower energy prices will actually be sufficient to offset the harm it will bring to that industry, and those others to be hurt by the folding energy firms.
I personally don’t subscribe to that scenario, but that is the only sense to be made of the charting I examined this weekend. The actual economic/financial facts of the matter will be forthcoming soon enough, and make its presence felt, as it unfolds in real time. Until then, what will be the driver, since oil is no longer doing so (or stocks would have seriously dropped this past week on oil’s decline), is that the view ahead is toward the next earnings season to commence Monday the 11th, in one more week’s time.
So, the jury is still out. Is it a Bull? Is it a Bear? It was certainly going Bearish, but it is truly striving mightily, and even sincerely, to revive itself as still being a Bull! I would have never expected that, had I not seen what the Dow 20 Transports were doing. There’s still other Bearish case evidence, too, like how that the Utilities are still experiencing a rally of a flight to safety kind of effort, which argues for the Bears! We shall soon see….
Here’s to your successful investing!
Harold F Crowell