Back in early February we made mention that the Dow Jones Transports was breaking down to new lows, through the lows made last November, which was a bearish signal for the Dow Jones Industrials. Needless to say March was a terrible month.
Going back a little further the 2007 highs were marked by what is known as a ‘non-confirmation’ or a situation where the Dow Jones Industrials moves to a new high yet the Transports fail to follow. Call it a divergence between the two if you like, but the issue is that we’re seeing another signal now, the first since the early February signal.
In this case the Dow Jones Transports are not confirming the recent strength of the Dow Jones Industrials, specifically the move above the early May highs. Unlike 2007 and February this year, the focal point of this non-confirmation is an intermediate high rather than an major high as it was in 2007 or low as it was earlier this year.
We’ll discuss this pattern in more depth on Tuesday in the Global Markets section, but this alert is a red flag that should be taken seriously if price starts to roll over.
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