The Dow Transport Turn-Around

Fifi, my French housekeeper, or “domestic dominatrix” as I prefer to call her, was doing some dusting around around my desk a short while ago while I was out walking the dog when the bugle bell on my charting software went off. Being a technical analyst at a major Wall Street institution before burning out and choosing to make my life miserable, she looked at the alert and saw that not only had the Dow Transportation index (DTX) put in a solid bottom, but had broken through the 430 resistance level. She told me to come in as soon as possible and take care of this matter at once.

I looked at the chart and shot her “And what am I supposed to be seeing here?” look. Hands on her hips she knitted her brow in disapproval, “Have not you learned anything in your 15 years of trading, Dr. Kris?” she said in her thick Inspector Clouseau-type accent. “Don't you know that zee transports are usually a leading indicator of stock market direction? And cannot you see that the VIX [volatility index] is nearing historic highs and zat means zat zee market is getting extremely oversold? Also, in zee past, oh, hour or so zee equity VWAPS [volume-weighted average at price--a measure of institutional buying or selling] have just shifted from very, very negative to very, very positive?”

I looked at her sheepishly and replied, “Um, sure...”

“So what are you going to do about eet? I'll tell you what you are going to do about eet: You are going to buy index options or options on the quatr' Qs [QQQQ, the Nasdaq 100 tracking stock], zat eez what you will do,” she said while shaking her feather duster at me.

The scowl on my face must have been too obvious because she turned on her heels and left the room with a harrumph. According to Fifi, she is never wrong, but sometimes markets can be even more fickle than French maids. Time will tell if Fifi's predictions will come true...but just in case she might be wrong I'm tempted to take a more conservative straddle position.

Posted by Dr. Kris at 12:10pm PST