Transports Update

I'm covering Transports more out of the dreaded "Hope" word than anything. We've already had two opportunities to open core/trend short positions in transports and they are at gains, however Transports are one of my favorite short trades out there so for those who may not have gotten in and would like to, I've been hoping the 30/60 min positive divergence in transports would be enough to give us a decent enough bounce that we can open new or add-to short positions in to price strength/underlying weakness before its too late.

From a Dow Theory perspective as I've shown several times, Transports are flashing bright red lights with regard to the market.

 Industrials (green) vs. Transports (blue) and the difference between their performance on a custom histogram I created (red). You likely remember when transports were a momentum group and popular, outperforming the Dow below (red histogram above the zero line), and of course the Dow-Confirmation problem between Industrials and Transports as the latter has deteriorated significantly (now below the zero line).

Still, I'm not looking for a reversal in transports that ends this divergence between the two, just hoping for enough of a bounce to reduce risk and make an entry worthwhile.

The 30 min (above) and 60 min IYT/Dow-20 charts have shown a positive divergence that is large enough that a year ago it would have supported a 2 week rally before Transports even began to lose momentum,  now they can hardly move above their bounce base.

 The 15 min chart which is VERY close to migrating to the 30 min and turning it south, has already seen quite a bit of distribution n to price gains to the upside, note the leading negative divergence already sending Transports lower.

 And the same is seen on the 5 min chart with the base/accumulation area to the left.

This does not look good for transports, it looks great for our established short positions there, but still I'd love to get one more crack at them.

The intraday chart (1 min) like the major averages isn't all that impressive at all. As I said Friday, if the market is going to get ANY upside, it has some work to do early this week. Again, this is not anything I'd be very excited about as far as prospects for a bounce, but the 30/60 min charts, while damaged, are still intact so there's still a chance until they are as badly damaged as the 15 min chart above which is moving their way.

Taking a closer look intraday on the same 1 min chart, there has been more of a lateral trend than the early downtrend and there's an intraday positive forming just as we have seen in some of the averages. It looks to me it has quite a bit of work to do for a decent bounce to be reality, but it is possible and as the morning games burn off, both the averages and Transports are seeing better looking charts intraday, still FAR from anything resembling good, but they look like they are trying to do that work I mentioned in Friday's The Week Ahead post.

So we'll be patient, see how much work they do and if it will be enough. If you are interested in Transports as a trade, I would only trade it from the short side by letting price come to you, therefore I'd set some alerts above current price levels. I have set alerts and will update you if it looks like there's going to be an opportunity to get in to this position. I personally don't believe trading a bounce in Transports is worth the risk, even with better looking charts than what we have now, but we'll keep tabs on the progression.