Option Queen Letter By the Option Royals Jeanette Young , CFP ® , CFTe, CMT, M.S. 4305 Pointe Gate Drive Livingston, New Jersey 07039 www.OptnQueen.com [email protected]May 15, 2016 While we rarely speak of the Dow Jones Industrial Average as the indexes mere 30 stocks provide a limited view of the market, today might be a good day to do so. This average, created by Charles Dow, the co-founder and editor of the Wall Street Journal, is named after Mr. Dow and his business associate, Edward Jones. It was Dow’s goal to construct an index of companies that would reflect the behavior of the USA’s industrial sector and broader\ economy. Our analysis today shows that this index is in danger of removing a support line which has been in tack since April 12 of this year. Should that level of 17535.32 fail, the Dow Jones will fall to about 17200.00. The good news is that the volume is not unusual. What is more interesting is the fall in the Dow Jones Transportation Index. Last week we spoke of the decline in the volume of commercial traffic on the rails. This index broke a key support level at 7663.17 and tested another level at 7507.31. Charles Dow believed, as we do, that in a strong economy the movement of goods from one place to another should be robust. In other words, stuff produced needs to be delivered to those who use. Thus, the Transportation Average should reflect this behavior by rallying if the economy is expanding. It is also thought that if the transportation average does not rally, then the economy is likely contracting. The bottom line is that a falling Transportation Average tells us that the economy is punk. The weekly chart of this index is even more disastrous than is the daily chart. The Baker Hughes rig count dropped again. Last year the Baker Hughes rig count was 660 and today it is 318. Much of the petroleum products we use are transported by rail. You can immediately see that this drop has negatively affected the transportation average. Boone Pickens said, in a Bloomberg interview, that crude oil (WTI) must rise above $60 a barrel for drilling operations to resume. We guess that is looking under the hood alright! Some experts are saying that the average wage earner is benefiting from the lower cost of gasoline. While we agree that the lower cost is certainly helping, when you see the price of port products rise 35.9% it is clear that savings is being eaten up by food and housing, both of which are rising.
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