Everything Looks Straight, Except the Trannies

The broad market continues to consolidate in a rather mild manner since Tuesday’s short-term top. Selling, by and large, has not spun out of control, and we are seeing much more benign indecision that the violent, sloppy indecision we had seen on charts so many times after rallies earlier this summer. To be clear, mild indecision does not guarantee that a new bull run is imminent. However, it gives charts a much better chance to set up tight patterns off of which patient traders can find lower risk entry points. I am still treading rather lightly, as another bout of heavy selling is not something I am prepared to rule out yet. Indeed, working through the dog days of summer is not fun for traders seeking that hot action. However, an extra bit of patience here will likely put you in a much better spot to pounce when we do see a slightly better market.

The divergence that still merits my attention is the performance within the transportation sector. Note the major rails, like CP and UNP, are brilliant, while the sector as a whole remains quite weak. I am not quite sure when the rubber meets the road, but I suspect in the coming weeks we will know which side wins out. I am watching the trannies closely until then.

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