2015-03-23

Diamond Trannies

I noticed this diamond pattern in the Dow Transportation Index. It is so clear that I was able to use the diamond pattern tool in MS Paint to draw it. In addition to the diamond pattern, there is a falloff in volume for the ETF, iShares Transportation Average (IYT). Looks like a downside move is coming. Today, the transportation index also fell by 1.6%, versus flat action in the major indexes.

The diamond top occurs mostly at the top of considerable uptrends. It effectively signals impending shortfalls and retracements with relative accuracy and ease. Because of the increased liquidity of the currency market, this formation can be easier to identify in the currency market than in its equity-based counterpart, where gaps in price action frequently occur, displacing some of the requirements needed to recognize the diamond top. This formation can also be applied to any time frame, especially daily and hourly charts, as the wide swings often seen in the currency markets will offer traders plenty of opportunities to trade.

The diamond top formation is established by first isolating an off-center head-and-shoulders formation and applying trendlines dependent on the subsequent peaks and troughs. It gets its name from the fact that the pattern bears a striking resemblance to a four-sided diamond.
Introducing The Bearish Diamond Formation

The move lower in transports today was driven by a drop in Kansas Southern (KSU), a railroad being hit by falling oil prices.
Kansas City Southern cut its full-year revenue outlook and provided weak guidance as it deals with slow growth from energy customers as prices in that sector remain depressed.

The railroad operator now expects low single-digit revenue growth for the year, reduced from the mid-single-digit growth. It also expects flat revenue in the current quarter.

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