Yesterday I wrote about how I think the ValueLine Arithmetic Index (VLE) is much too strong to short this market. The chart below shows price bounced off the 1×1 descending angle yesterday. This angle usually provides significant resistance when approached from the low side. Of course, price can eventually go through it. But hitting it after a rally of 180 days is an almost certain setup for a pullback of some magnitude.
The other index I watch is the SP500 Equal Weighted Index. The price shown here is of the same components of the regular SP500 index, but in this case, all companies contribute the same share to price. The chart looks similar to the VLE chart above. But price has not bounced as high on the SPXEW and remains a long distance from the 1×1 descending angle. The equally significant 50% price retrace angle is in play and stopped price yesterday.
The final chart is that of the Dow Jones Transportation Average Index. Using July 2007 as the market high, price is now at the 50/50 point of the bull market range. Price took an interesting route to reach this point. At first, price overbalanced to the high side. But eventually price overbalanced to the low side during the bank panic. Price is exactly where a healthy correction would end up, but I am not certain which direction this chart will break. My assumption is that it will move with the total market and that direction is down for an extended period of time.
Charts courtesy of Stockcharts.com
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Tags: Dow Jones Transportation Average (TRAN) · Value Line Arithmetic Index (VLE)No Comments
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