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Transports’ Major Support Line Must Hold

Stocks rose Tuesday in anticipation of the first interest rate increase since 2006. The FOMC announcement is expected to include a statement from Federal Reserve Chair Janet Yellen that the economy is strong enough to withstand a hike and that future increases will be data dependent and at a slow and deliberate pace.

Commodities and junk bonds took a severe hit last week, but they rose significantly on Tuesday, enough for some analysts to call a bottom in both bonds and crude oil.

The Dow Jones Industrial Average and Nasdaq each gained 0.9%, and the S&P 500 was up 1.1%. Gains were broad based with all 10 sectors of the S&P closing higher.

The Dow industrials’ advance was led by energy giants Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX), up 4.5% and 3.8%, respectively.

However, technology giant Apple Inc. (AAPL) fell 1.8%, extending its decline to six consecutive days.

The yield on the benchmark 10-year Treasury note rose to 2.27% from 2.23% as bond prices dipped. The U.S. dollar rose slightly against the euro to $1.0935.

WTI oil was up 2.9% to $37.35 a barrel, but natural gas prices continued to slide, falling to the lowest level since 1999.

At Tuesday’s close, the Dow Jones Industrial Average gained 156 points at 17,525, the S&P 500 rose 21 points to 2,043, the Nasdaq added 43 points at 4,995, and the Russell 2000 was up 16 points at 1,132.

The NYSE Composite’s primary exchange traded 975 million shares with total volume of 4.3 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 3.5-to-1, and on the Nasdaq, advancers led by 2.3-to-1. Block trades on the NYSE increased to 5,532 from 5,486 on Monday.

FXE Chart
Click to Enlarge

Chart Key

Despite its best rally in months, the CurrencyShares Euro ETF (FXE) appears to have faltered at its 50- and 200-day moving averages. The recent jump in the euro was attributed by currency traders to short covering prior to the Fed’s meeting.

If the Fed raises rates, euros should flow back into the United States with another rise in the buck as European goods become less expensive due to the higher value of the dollar.

Dow Jones Transportation Average Chart
Click to Enlarge

One of the most visual inflection points of all major charts is the support line at 7,500 on the Dow Jones Transportation Average. A break there virtually assures a continued Dow Theory non-confirmation with the industrials and the reversion to a bear market.

Conclusion

What do the charts of FXE and the Dow Jones Transportation Average have in common?

If the Fed raises rates today, the dollar will probably advance versus the euro, because money always flows to where it is treated best. And U.S. manufactured goods will become even more expensive to not only Europeans but to our second largest trading partner, Canada, whose dollar has fallen to around 75 cents, largely due to the drop in energy prices, which is a unique situation.

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/2015/12/daily-market-outlook-transports-major-support-line-must-hold/.

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