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The importance of perspective when analyzing charts cannot be emphasized enough. In particular, when dealing with an historically accurate broad market gauge, such as the transportation stocks, it is crucial to not jump to conclusions without first considering the price action over multiple timeframes. As an example, last year around this time the elder statesmen of Dow Theory, Richard Russell, was literally telling people to “sell everything,” and he was calling for the end of America as we knew it. In large part, he based his analysis on what he figured was a massive breakdown in the trannie stocks.
However, as I detailed every single day in my market wrap ups all of last summer (feel free to look in the archives), the trannies never so much as took out their February 2010 lows last summer, despite the S&P 500 doing so. Hence, despite people paying him handsomely to hear Old Man Russell’s exhortations, it was actually your good friend “Chess” that was right on the money, giving you all of this information for free right here on iBankCoin, day in day out.
Over the past several months, the daily chart of the trannies has been quite sloppy, indeed. It would have been so easy to turn bearish on the market and play for a big breakdown, once again, based on this Dow Theory extrapolation. Instead, zooming out to the weekly chart, we can see that the bullish pattern is still intact. It truly is amazing to see how sloppy a daily chart can be, while the weekly remains simultaneously pristine. Until we really see any type of damage on the weekly, the trannies command your respect, as they took out their April 4th, 52-week highs today.
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last year around this time the elder statesmen of Dow Theory, Richard Russell, was literally telling people to “sell everything,”
Well let’s see, one year ago today the S&P was at 1,212. A month later it was at 1,067. I wish I had sold everything then. But I’m glad I have caught a lot of this up move since September.
Big difference between being bearish back last April/May, which I was, versus throughout the summer calling for a long-term drop. He disrespected his own discipline, which is absurd since he is known as Mr. Dow Theory. I am surprised no one has really called him out on it.