One of the most challenging chart patterns is now upon the Dow Jones Transportation Index (NYSEARCA:IYT). That chart pattern is the triple top formation. Triple tops can be considered challenging because they imply a three strikes rule of baseball. If the batter swings and misses three times then they're out for that at bat.
The triple top usually indicates that investors have, or are about to give up on the particular stock or index. This could be an instance of the market bulls capitulating to whatever forces are at play. One thing is certain, if the downtrend of the Transports continues then we could expect the index to go to the previous low of 3600, which implies a Dow Industrials (NYSEARCA:DIA) of 9700.
The implications of a triple top is troubling primarily because the Transportation Index has spent the better part of the last two months resisting going over the November 4, 2008 peak. The Transports have not been able to confirm the Industrials in this regard which, to this point, is a Dow Theory non-confirmation.
In addition, the volume on the Transport Index has fallen off a cliff in the most recent rise from the November 2nd low. This indicates a lack of interest in market participants. Lack of interest in the rise generally means that the current levels in the Transports will be difficult to sustain. Additionally, the MACD and the RSI appeared to have topped out and are headed lower.
The threat of a triple top and its implications shall remain in place unless the Tranports can exceed the 4072 level. All of the indications mentioned make me wonder if this means the end of this bull run within the secular bear market.