We warned readers a while back to closely watch 5 leading markets which were at major inflection points, one of them Transports. The reason the transportation stock market sector is important for the whole investment community is that it is a leading indicator for stock markets, but also for overall market strength.
Right now, Transports are looking weak. The chart below makes the point. After a rise to all-time highs in February and March, Transports fell back to the important 9000 area. Where Transports go from here will largely determine the full stock market outlook.
Interestingly, when analyzing the below chart, it looks like Transports are ready to break down. However, a breakdown is only a breakdown once it's confirmed. This sector can still move higher from here, even if it does not look strong. In case of a breakdown, stock markets as a whole will be weak.
The first support area kicks in at 8250 points, a decline of almost 10 percent. In such a scenario the S&P 500 Index can also fall some 5 to 7 percent in our humble opinion, after which things have to be evaluated based on inter-market dynamics.
Investors, watch closely what happens at 8900 points and, if relevant, at 8250 points in the Transportation Index.
