By now everybody knows Trannies trade horribly bad. Interesting though, is that beaten down Tran index, turned around at mid-day in US session, and managed “crawling” back, catching up to the other indices.
This is typical, when main media starts explaining how bad Trannies are, the index turns around and surprises most. Is this the rationale to become bullish this space?
Probably not, but when under performers suddenly turn, it many times signals a short-term exhaustion of the current trend, in this case down. We would only see this as potentially a short-term bounce.
Tran index on the daily chart has been going one way over past two weeks. Note the big hammer candle, right on the huge support level at 10 000. Both 50- and 100-day averages are right here. As we said, at best it would be a short-term signal for bears that the steep move lower could bounce. In order for a proper reversal signal to occur, we need a big day up, so let’s wait before getting too excited.
The similar “pattern” can be seen in the other under performing index, the Russell.
Below chart shows the spread and ratio of Tran versus Dow Jones index. Over past weeks it has been one-way traffic, but the spread can move quickly in the opposite direction as well. The question is where is the overall market going, in case you don’t want to play a possible spread compression?
Source< charts by Bloomberg