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Transports hold 200-day moving average

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When weakness abound, trader will look for signs of technical strength. They'll do it with an unbiased approach to the analysis, but base their observations and thoughts from other observations made.

Yesterday we noted that the Dow Industrials (INDU) had dipped just below its 200-day moving average in the early morning hours, but was able to battle back and close above that moving average by session's end. With the Dow Industrials (INDU) 9,966 -0.69% trading just above its 200-day of 9,933, this longer-term moving average is still holding as support.

Also showing some strength after a recent test of the 200-day moving average are the Dow Transports (TRAN) 2,731 +0.17%. The strength shown isn't considered "biblical proportions," but hints that either bulls haven't given up on the group or bears are concentrating their efforts in other areas of the market.

Dow Transportation Average (TRAN) - Daily Interval

While we've become more "defensive" for the transports, the group has traded strong RELATIVE to other sectors in the market. If the TRAN were able to get back on upward trend, this could bring some underlying bullishness to other areas of the MARKET.

It has been one of my scenario's that the transports would be a group for bulls to be trading bullish should the economy show growth. While nobody likes losses, bulls in this group have perhaps faired much better than some other sectors of the market.

I'm also monitoring the Morgan Stanley Cyclical Index (CYC.X) and seeing marginal gains there today. Nothing that is technically significant, but that group has also performed better RELATIVE to many sectors. It too is considered to be a group of stocks that would respond more bullish in the early part of an economic growth cycle.

Both the Transports and the Cyclicals are trading well above their February lows. Earlier today we noted that the broader NASDAQ Composite (COMPX) 1,674 -2.29% had fallen below its February lows and seems to confirm our past beliefs that most technology stocks were not the place for bulls to be focusing their efforts.

Jeff Bailey
Senior Market Technician
Option Investor

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