Dow Theorists Watch the Transports ($IYT)

The choppy-to-weak trade resumed today, as the large-cap indices continued to see selling pressure. The Dow Jones Industrial Average ($DJX) finished the day down 106 points or ~.58 percent. This is about 70 points higher than its worst levels today. The Dow Transports ($IYT) continue to trade very weak, adding more pressure than relief.

If this weakness continues, i.e. the $IYT breaks its 50-day moving average, we could see further pressure to the downside, affecting the Blue Chip Index ($DJX) as well. If we don’t see that both these averages bounce and make new highs together, this would be a big divergence and a violation of the Dow Theory that clearly states that both these markets need to hit new highs to confirm an uptrend.

If the Dow Jones ($DJX) or the Transports ($IYT) can hold their 50-day moving averages, I would consider this a natural pullback. If they break these levels you could see selling ramp up.

One note, Utilities ($XLU) have been pretty beat up as of late. If the Dow gets anymore selling pressure, Utilities could get a bid to the upside.

Have a great trading day!