Things could get even dicier for Wall Street after the a bearish chart pattern emerged in the Dow Jones Transportation Average . The Dow Transports formed a “death cross” chart pattern, with its 50-day moving average breaking below its 200-day counterpart. These formations raise concern among chart analysts because they tend to be followed by more downward momentum for an asset or benchmark. The fact that it’s the Dow Transports chart showing this is especially rare, too. Within its history dating back to the 1800s, a death cross has appeared just 28 times, according to Bespoke Investment Group. The formation of the death cross could raise warning signals for the Dow Jones Industrial Average and the broader economy, according to Dow theory. One of the principles of Charles Dow’s theory is that a trend in one average must be confirmed by the other. In other words, if Transports are falling, then Industrials should also should also go lower and confirm a prolonged downtrend. Dow Transports are viewed as a leading indicator of economic health, so experiencing the death cross could signal that the Industrials’ recent climb higher may be short lived. The 30-stock Dow Industrials are up more than 3% over the past week, but remain lower by 4.6% over the past month. Transports have tumbled 10% over the past month. To be sure, Bespoke noted that the Dow Transports has often moved higher after flashing the bearish technical signal. “Despite the bearish reputation, historically these patterns have been followed by decent returns,” the research group wrote. The index has trended higher around 60% of the time in the following three and six months after forming a death cross, per the firm.
Key market index that’s a barometer for the economy forms the dreaded ‘death cross’
