Wall Street Prophet Council – week of February 11th, 2008

The Dow-Transports (.TRAN) closed Friday at 4711.67, haven rallied off their Jan. 23 lows of 4033 back to their 200-ema of 4751. Friday’s drop represents an initial reversal, a failure of that resistance level. The bulls will not give up easily and the bears can expect a few attempts by the bulls to get through the resistance and try to put the market into a positive bias.

Should equities attempt another rally this week, watch for the .TRAN 200-sma of 4856, the next significant resistance level. Given our broader thesis that we have entered into a cyclical bear (shorter-term), we anticipate the Transports to fail these levels and take another leg down from here.

As members of our Prophet Council know, we watch the Transports very closely. This is because the Transports most closely represent the general health of the economy. Think of them as the US-economies blood pressure. Both the Transports and the Semiconductor index (SOX) peaked first on July-07 and are now in bear market territory, down the most from their highs -26.5% and -39.2% respectively. The other indices are all one by one approaching their own bear market inflection points of – 20%.

Whether or not US-equities have entered into a secular bear market, remains to be seen. Ultimately, that depends on the employment, the consumer, banking liquidity, housing and other key economic factors. For now despite what the talking heads tell us on CNBC and other “commercial news networks” are selling us, it is good enough to know that we are in a Cyclical bear market and rallies are to be sold into not bought.

The Wall Street Prophet

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