If you had to pick just two charts to look at in trying to gauge the future of the stock market, you'd be hard pressed to come up with any two much better than the transports without the rails (TRANQ) and the Baltic Dry Index (BDI).
The BDI is a measure of actual planned (not speculated) shipping of dry goods and the Nasdaq Transportation Index, almost devoid of the rails, is a measure of what Dow Theory wants it to measure - transportation of goods activity. Why do we want to exclude the rails? Because they have become so heavily levered to commodity transport and commodities have become so heavily levered to the U.S. dollar mess. The transport indexes with a lot of rails look better, but that's just because the poor finances of the U.S. are driving down the dollar and driving up investor demand for commodities - the unprintable money. So to get a more honest look at economic health, it would be good to look at transports with no rails. TRANQ has just one last I checked.
Looking first at this TRANQ: (click to enlarge charts)
Here we see what I regard as a ghastly chart. For one thing, it is down for the year. You could call that a loud Dow Theory non-confirmation of the S&P 500's lofty new high for the year. Another serious technical problem in this chart is the fairly well defined resistance level that was broken just briefly in September only to fade weakly back below it, breaking the 50 dma in the process.
Looking at the Baltic:
The BDI has been tracing out a pretty accurate roadmap for us so far over the last year giving us the forecast 3 months in advance. There's no guarantee it will continue to do this nice favor for us, but it does have a history of foreshadowing our stock market. It put in a top, a consolidation, and then a fairly meaningful decline about 3 months ago. So the two trusty charts, TRANQ and BDI, agree on the next phase of the market. It would appear to be a weak consolidation of several months at best or a smackdown to the economy of the TRANQ at worst.
Disclosures: SH, TWM