Why Remain Unmoved About the Transports?

 | Aug 02, 2017 | 6:00 AM EDT
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Sure, we got a rally Tuesday, but you have to admit it looked pretty weak. Typically after we've seen three red days in a row for the S&P 500, the fourth day is up nicely and feels quite strong. If you ask me, Tuesday felt as though we sort of eked it out.

Yet breadth was quite good. Net volume was positive for the second day in a row, the best showing it has had in two weeks. It still shows the market a little bit oversold, although this is the only metric that shows it oversold. Using the advance/decline line, it is not oversold.

In addition, the 30-day moving average of the advance/decline line is not oversold; it will be back to an overbought reading by Friday.

Then there is the chart of the Russell 2000. It did bounce off that black line I drew in. I can wait while you get a magnifying glass to see it. I realize the red line is 20 points higher, but in my view that would again be the lid if it can make it that far.

What concerns me most, though, is the increase in stocks making new lows on Nasdaq. It has cranked up to 75, the highest reading since late May. About the only good news from this chart is that the last three times new lows climbed into this area, the market rallied.

Then there are the transports. It seems almost the consensus view that they simply don't matter as much as they used to. That might be true, but I remember hearing that chatter in 1999 when the transports went down and Nasdaq went up. I just don't think we can ignore the transports when it's the railroads, the truckers, the airlines and the delivery companies. It's straight across-the-board weakness. How can you ignore that?

I still believe we'll see a bounce in the transports from this 9100 area, but I fully expected more concern in the chatter. My guess is, after the bounce I expect, we will see the transports come down again and that's the decline that gets folks concerned.

Finally, there is the chart of the VIX. Last week, I drew in a potential W pattern and it's desperately trying to map out that pattern. This move down for the second V of the W should equate to this minor oversold condition in the markets. I expect by midmonth the VIX will be rising again if this pattern is to play out.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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