Out of Balance Alert ...

By: Marty Chenard | Tue, Nov 24, 2009
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Who's going to tell you? ... It won't be the main stream media, or myopic Wall Street analysts who don't look at the Global picture.

What am I talking about this morning? ... A problem that appears to be brewing on the Transportation Index, the Dow Jones Industrials, and the Japanese TX100 index.

So, today's update will be longer than usual as we explore how the U.S. stock market and Japan's TX100 correlate.

Let's start today, by looking at the U.S. side, and specifically at the Dow Jones Transportation Index.

Note today's Transportation index chart below. Two important things are obvious.
1. The Relative Strength has been moving down with lower tops, and it is negatively divergent with the Transportation Index. (The RSI is still positive, so one does not know for sure if the RSI will move down and make a lower low, or break up past the resistance line.)
2. The Transportation Index just made a "triple top". That is significant because that represent 3 attempts where it could not get past a 3 month resistance level.

Everyone understands the relationship between the Transportation Index, goods that are shipped, and retail sales. If the Transportation Index were to fail to the downside, it would suggest that the economy was weakening because of a decrease in products being shipped. A break to the upside would suggest the economy was getting stronger because of an increase in products being shipped.

So, the upcoming breakout will be important, and it may be that Institutional Investors are waiting to see the consumer's Christmas buying behavior before they decide on how to play the Transports.

*** In any event, this triple top is a CRITICAL testing level that will affect the other indexes. Now, see the next chart ...

Now, let's move abroad and take a look at Japan's TX100 Index. A few people are saying that Japan may be rolling into a slow crash.

From our view point, Japan's market just broke below a Head & Shoulders pattern. The downside implication of this is for it to fall to just above the 500 level which would be above its March low. So, Japan's stock market is in trouble and falling now. See the next chart ...

This next chart shows the correlation between our Dow Jones Transportation Index, the Dow Jones Industrial Index, and Japan's TX100.

I inserted labels 1 to 4 in order to make the comparison easier. Here are the past correlations:
1. At label 1, the Transports, the Dow, and the TX100 made simultaneous peaks.
2. At label 2, it was a little different. The Dow reached its peak first, and it was a few weeks later that the Transportation index and the TX100 finally reached their peaks.
3. At label 3, all three indexes reached a market bottom simultaneously.
4. At label 4, all three index reached a pull-back bottom simultaneously.

Those two years of correlation came to an end in August.

Now, about three months later, we have the following:
1. The Dow is still trending up.
2. The Transports have stalled with a "triple top".
3. And, the TX100 is having a correction.

There is now no correlation between any of them. They are out of sync.

They are out of balance with one another, and balance will be re-established. This means that we will see some very unusual market activity in the coming days or weeks when balance is re-established.



Marty Chenard

Author: Marty Chenard

Marty Chenard
Asheville, NC 28805
Tel: 828-296-1200

Marty Chenard is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools and stock market models. As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL. He is an advanced technical analyst and not an investment advisor, nor a securities broker.

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