The Dow Jones Transportation Average Is Showing Cracks

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On Thursday, stocks traded flat, with declines in sectors with recent advances offset by a modest rally in sectors that had been ignored or subject to profit taking.

The Dow Jones Industrial Average fell less than 0.1%, the S&P 500 rose less than 0.1%, and the Nasdaq fell 0.1%. Small-cap stocks declined, those represented by the Russell 2000, which fell 0.3%.

Corporate news items drove specific issues higher: Mead Johnson Nutrition Co (NYSE:MJN) gained 21% after The Wall Street Journal reported that it was in buyout talks with a U.K. firm. Philip Morris International Inc. (NYSE:PM) rose 3% after reporting that revenues had increased 9.1% in Q4. And United States Steel Corporation (NYSE:X) rose over 11% following an upgrade by the Bank of America analyst (see Trade of the Day). But gains were offset by losses in some high-profile issues.

Facebook Inc (NASDAQ:FB) fell 1.8% on concerns over the company’s revenue growth, which has lagged for three consecutive quarters. Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) fell 0.2% and 0.6%, respectively.

According to CNBC with 50% of all S&P companies reporting quarterly results, 20% missed expectations, 12% made expectations, and 68% exceeded expectations.

At the close, the Dow Jones Industrial Average fell 6 points to 19,885, the S&P 500 rose a point to 2,281, the Nasdaq fell 6, closing at 5,636, and the Russell 2000 closed at 1,357 for a loss of 4 points. The NYSE’s major exchange traded 880 million shares with total volume of 3.7 billion shares, and the Nasdaq crossed over 2 billion shares. On the Big Board, advancers outpaced decliners by 1.3-to-1, and on the Nasdaq, decliners led by 1.1-to-1. Blocks on the NYSE at 6,530 were higher than on Thursday, but by a small margin.

DJI flat
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The Dow Jones Transportation Average Is Showing Cracks

With narrow support at 19,732 to 19,762 and on-balance volume favoring the bulls, the Dow Jones industrials appear to be holding and supporting a continuation of a bullish outlook.

djt in trouble
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The Dow Jones transports confirmed the bull market with a new higher close at 9,469 on Jan. 26, just six days ago. Now, however, the index that many economists rely on for predictive value appears to be in trouble. Yesterday’s close, preceded by higher-than-average sales, fell below the important 50-day moving average at 9,165 and threatens to break the lower support band at about 9,100. MACD issued a minor sell signal.

Conclusion: The Dow Jones Transportation Average is threatening to break support. If a break occurs, it would trigger a “non-confirmation” and, at the least, that threatens to negate the bull market signal of just several days ago. Watch downside volume on the industrials for an indication of a negative turn.

Despite the gathering clouds, a total breakdown is improbable. However, a 5% to 10% correction is not out of the question. It is time to be wary and, with few exceptions, this is no time to chase high price-to-earnings equities.

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.

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