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Is Market Missing Critical, Bearish Technical Signal?

Guy Adami and Dennis Gartman have both spotted an important technical indicator that they find troublesome, to say the least.

We’re talking about the technical patterns emerging in the Dow Transports. Adami, Gartman and other market pros believe this highly watched index may be showing signs of a double top – traditionally a bearish sign.

The negative signs are at least twofold 1)the transports have not made a higher high since September 15th and 2) as the index fell volume swelled but as it rose volume waned.

That’s bearish if you’re a Dow Theorist

(Dow Theory is a thesis which contends the market is in an upward trend if either the DJ Industrial Average or DJ Transports advances above a previous important high and then the other makes a similar advance.)

I’m not a Dow Theorist but you can't ignore this kind of signal, explains Dennis Gartman on Fast Money. We’ve had reversals and we broke an uptrend line, he explains. Those patterns are significant - they're not to be ignored.

When the Transports don't make a new high as the Industrials do, we're looking squarely at a bearish technical indicator, says Gartman. We're looking at problems in the very near future.

What’s the trade?

Enough things happened technically last week, and the demise of the Transports on Monday, make me think stocks could drop 10%-15% from the highs, says Gartman. I'd be short of the market. Place your bets accordingly, he counsels.




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Trader disclosure: On October 26th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Najarian Owns (BIDU) Dec. Call, Is Short (BIDU) Nov. Call; Najarian Owns (DNDN) Calls, Owns (DNDN) Puts; Najarian Owns (YHOO), Is Short (YHOO) Calls; Terranova Is Short (FCX)

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