Let's talk about two charts that have broken down in the last two weeks. It is my view that they are both important in their own way.
We'll begin with the Transports.
I noted them to you midweek last week and that is because they broke down under the August low and no one seemed to fuss, although by Friday there were many who finally saw it and commented on it.
A bit of background first. Over one hundred years ago Charles Dow wrote his Dow Theory. He wasn't using technical analysis but rather economic analysis.
Dow's view was that if the Industrials (the DJIA) were doing well then the Transports should be doing well. If one index did not confirm the other there was something amiss in the economy. The companies transporting the goods that were produced by the industrials should be moving in the same direction.
There are those today who scoff at this and believe we should instead focus on the semiconductor industry as the new group to determine the health of the economy. I could argue against it but it wouldn't matter, that is a school of thought. I would remind you that I am not an economist, but I do believe semis do not get delivered via osmosis and therefore do need to be transported, so to scoff at the action in the transports seems to be putting one's head in the sand.
To me the breakdown is important. I can make a narrative (that we know I am terrible at!) but rising energy prices are likely one of the issues for them.
There are three major Dow Jones indexes. Over the decades they have become secondary, or maybe tertiary to the S&P 500 and its various sub-industry groups but as an old timer I still consider the Industrials, Transports and Utilities important to watch. That's why next we'll turn to the Utes.
In the last few weeks I have drawn in this long-term uptrend line on the chart of the Utes for you with the most recent installment last Thursday when we finally tagged the line.
Today, however, I want to focus on the shorter-term (one year) chart.
The Utes broke down under a very well-watched support level in early September. They have since rebounded right back to that breakdown area.
Long-time readers know that I like to see a break of an important or well-watched level to give the market a chance to see what's down there. Often those breakdowns arrive late in the decline and are therefore false breaks.
The next week or so will be a big test for the Utes: Can they get back up and over the 880 area? If they can, then I would view last week's breakdown as a false break. The bears would have given it their all and failed to capitalize on it.
If I am correct (in that I think it was a false breakdown) then it likely says something about interest rates as well. Notice the Utes began their recent slide just as rates were rising again.
Let me reiterate that I am not an economist, but if we take the Utes and Transports together and if I am correct that the Utes will recapture 880 then maybe it means the economy is weakening from the recent torrid pace and interest rates should back off in the coming weeks.