Flaccid FTSE
I know that some traders simply seek out opportunities elsewhere. So, while the FTSE and Dow may be hibernating, the Norwegian krone or some individual equity may be alive and kicking. This approach is not for me, though. I believe firmly that you should stick to trading a small handful of markets, and get to know them backwards. When your selected markets take a break, so should you. Patience is the key to dealing with dull markets, therefore.
S&P's false dawn
I explained last week how I am expecting the indices to surge confidently once the recent, mild shakeout has run its course. So eager have I been to take advantage of the up-move that I anticipate, that I have managed to make a couple of abortive entries in recent days. The markets surged on Thursday 27 September in just the way and I duly bought the S&P, only to be rapidly stopped out as it reversed its gains.
This is always a risk in sideways markets, whatever signals you follow. The Dow gave a repeat swing-chart buy signal on Friday, but then plunged through its stop-loss point the next day. The FTSE gave such a signal on Friday, and then breached its stop-loss on Monday. But this sort of thing goes with the territory. The gains once the markets resume their uptrend should more than compensate for losses now.
Despite my bullish outlook - the fundamental aspects of which I discuss in a new video, which you can watch here: bit.ly/Wjk2Ta - I am still paying attention to the pessimists' arguments. One suggestion that I have heard made by various sources lately is that the Dow Transportation Average's weak performance is warning of trouble ahead for the US stock market as a whole.
Transport off the rails
I am a big fan of the Dow Theory, the most credible incarnation of which is based on comparing the behaviour of the Dow Industrials, Transports and the S&P 500 - (www.thedowtheory.com). The original late 19th century logic behind tracking the two Dow indices was economic: the railroads that made up the Transports carried goods to and from the factories that made up the Industrials. If the rails were doing less business, it could be a sign of slower orders or fewer shipments.
Even today, the fortunes of the Transports are still watched as a 'canary in the coal mine' for the US economy. When FedEx - the delivery company and Transports constituent - warned on profits back in early September, many commentators interpreted this as possible recessionary omen.
Dow headed higher
However, it appears that this decades-old rule of thumb may be misleading. Based on his research covering the last 30 years, Mark Hulbert of marketwatch.com suggests that Transportation weakness can foretell stronger returns for the US stock market, rather than weaker ones. I shall certainly look into this proposition for myself. For now, I'm happy to pencil it in as one more reason why the Dow should head above 14000 before long.
