Is The Dow Jones Transportation Average Running Out Of Gas This Time?

By Jim Donnelly, Olson Global Markets

Since the depths of the March 2009 low, the Dow Jones Transportation Average (DJTA) has been on a remarkable run. It rose 3,431 points from the 2,134 March 2009 low to its recent 5,565 high set on May 2nd, a nearly 161% gain. By any kind of standard, that move was impressive. Nevertheless, long-term “channel top” resistance now sits at 5,718, 229 points above Friday’s 5,489 close. Although that level is still 4.2% higher from here, it does not seem that far away, particularly considering the extent of its recent 26-month rally.

A recent selloff in crude oil, gasoline and coal prices could give the DJTA enough of an impetus to continue the bullish move and be able to test the 5,718 area. Still, even if a test of that level does occur, a reversal (or correction) to the downside appears likely from a technical standpoint. Not only are long-term oscillators stretching into overbought conditions, but the rally is already flirting with a Fibonacci 161.8% move, which would certainly caution the Elliott-wave faithful.

In addition, a stalling and/or reversal of the DJTA would be a wary event for “Dow Theorists” since it supposed to confirm the Dow Jones Industrial Average (DJIA) in its trend. The inability to climb above this key resistance area would likely put equity prices in general on notice that a setback and/or reversal to the downside may soon emerge.

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