Dow Transports Still on the Wrong Side of the Tracks

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Thursday turned out to be a sluggish session in which the major indices traded slightly lower as the materials, energy and financial sectors were the target of profit-taking following their recent advances. Defensive sectors like utilities, telecommunications and consumer-discretionary stocks rose.

A downtick in oil and a 0.6% drop in the financials restricted the S&P 500 to a narrow 7-point trading range.

Oil prices exceeded $50 a barrel intraday for the first time this year, but a weaker U.S. dollar and signs of declining production pushed it down 0.2% to $49.48 at the close.

Materials stocks also helped keep a lid on the market, with the sector down 1.1%. E I Du Pont De Nemours And Co (DD) was the Dow’s biggest decliner, losing 1.9%. Freeport-McMoRan Inc (FCX) fell 2.7% but may now offer a good entry point (see the Trade of the Day).

Gold lost 0.3% at $1,220.10 an ounce. The yield on the 10-year Treasury note fell to 1.83% from 1.87% on Wednesday as bond prices rose. The euro was up 0.3% against the U.S. dollar.

At Thursday’s close, the Dow Jones Industrial Average was down 23 points at 17,828, the S&P 500 fell a fraction of a point to 2,090, the Nasdaq rose 7 points to 4,902, and the Russell 2000 was down a point at 1,140.

The NYSE Composite’s primary exchange traded 781 million shares with total volume of 3.2 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 1.1-to-1, and on the Nasdaq, decliners led by 1.2-to-1. Block trades on the NYSE fell to 4,215 from 5,397 on Wednesday.

Dow Jones Transportation Average Chart
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Chart Key

The dotted trendline, as well as the support line at 8,276, have held the Dow Jones Transportation Average back from a major advance. In Dow language, this “failure to confirm” is a significant development in how we view the current advance in the other indices.

The Dow transports did hold at the 7,465 line, but volume has been on the side of the sellers since April. The index’s one attempt at breaking the trend failed when prices turned south from the April high.

Conclusion

Without a break from the Dow Jones Transportation Average that establishes a reversal in trend, Dow Theory tells us that the bear still lives. Individual advances and breakouts can be traded, but Dow Theory has stood the test of time, so I remain cautious.

Have a great Memorial Day.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/daily-market-outlook-dow-transports-still-wrong-side-tracks/.

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