[ForexNews]

If not….then we think it is really close
Dow Jones transportation index


• Has bounced following the monthly close below the 200-month moving average just as it did after the breaks of 1930 and 1970. It is now trading close to the prior support area (2933-2954).
• In fact in 1930 and 1970 it even achieved a monthly close back above the 200-month moving average before falling again.
• The peaks of the bounces were posted in Feb. 1931, March 1970 and April 2009???? 39 year and 1 month gaps just like seen with regard to the 200 month moving average breaks (See below)

This peak will be a platform for renewed losses to at least the 2003 low at 1,918 (35% lower than present levels) probably in the next 4 to 6 months. In addition it is possible that even lower levels can be seen on a multi-year basis.

S&P long term chart


• For the moment some comfort can be taken from the fact that the S&P 500 long-term chart is back above the 768 double-top neckline.

• While that continues to hold the POSSIBILITY that a base has been posted at 666 remains. However if we were to see a decisive move below that level a second time (Weekly/monthly close) it would likely be terminal and support the view that a multi-year move towards 360 remains on the cards.

S&P 500 and DJIA


• We continue to believe that both of these rallies are in fact bear market rallies similar to those seen in November 2008- January 2009.
• As a consequence we would expect these rallies to struggle to go much past 873-877 and 8,160 respectively. In addition from a timeframe perspective we suspect that if the high is not in yet (And it may well be) then it is likely not much more than a week away.
• As with the correction that began in November most of the up move came from the impulsive move off the lows in the early days of the rally. Since then it has been a grind higher with falling momentum.

Long term Dow Jones transportation chart


• We keep reverting to this chart as it continues to be one of the most compelling long-term charts out there. Formally known as the Dow Jones Railroad average it is comprised of a price-weighted average of 20 U.S. transportation stocks including household names like AMR Corp., FedEx, Union Pacific, UPS etc. It is the heart of U.S. economic activity and as Dow theory goes where the transports head so go other markets and the underlying economy.

• We have had a number of long-term developments here that remain concerning.

1. In February this year we had a monthly close below the trend line which contained the bear markets of 1987, 1989-1990, 1999-2003 after holding for over 21 years.

2. Also in Feb. 2009 we got a monthly close below the 200-month moving average. This was the first such monthly close in over 33 years. In the history of our data going back to 1900 there are only 3 occasions where this index has spent a significant number of years above this average only to close below.

o December 1930: After 5 ½ years above the index closed on a monthly basis below this average. The bear market low was put in place 86% lower in July 1932.
o January 1970 (39 years and 1 month later): After nearly 25 years above the average on a closing basis. It hit its bear market low 30% below this close 6 months later
o Feb 2009 (39 years and 1 month later); What now?

There is no doubt that this break looks more similar to 1970 than 1930. (Pattern is more similar and timeframe above was much shorter in the 1930 episode). However it was above the moving average about 1/3 as long again as 1970.

In addition the bull-market of 1932-1969 (37 years saw the index multiply by a factor of 21 while the bull market of 1970-2008 (38 years) saw it multiply by 47 times.

After the monthly close below this index in 1930 and 1970 we immediately saw a respite to the down move for the following 2 months before lower again.

VXO and VIX


• Sit at pretty much the same support levels they got to in early January
• A move below these supports would be constructive but let us not forget that by historic standards this is still a very elevated level of volatility

NDX(Nasdaq 100)


• While this has admittedly been trading better it is struggling to break out of the down channel.

• While it remains above 1,286 there is still the possibility of further constructive price action. However back below there would suggest a failed break and the danger that this rally is simply a correction similar to that seen in the Mar-Jun 2008 period.

• In this event a move to new lows in the trend would then look to be a danger.

Bottom line we think the saying “Sell in May and go away” may turn out to be a very appropriate mantra in 2009.