The two charts below were published in our weekly Bespoke Report newsletter that went out to research clients on Friday. They show long-term three-year price charts of two equity indices that are generally thought of as “leading” indicators — that is, they’re thought to lead the broader indices like the S&P 500.
Unfortunately for market bulls, both appear to be in serious trouble from a technical perspective.
As shown, the Russell 2,000 (small-cap) and Dow Transportation indices have recently broken below long-term uptrend channels, and they have yet to find any kind of support during this correction. The Russell 2,000 is down 18% from its 52-week high, which puts it just two percentage points away from a new bear market. The Dow Transports aren’t far behind. The Transports index is down 17.4% from its 52-week high, meaning a bear market isn’t far away for this area of the market either.
Keep an eye on these two indices in the coming days and weeks as 2018 comes to an end. If they slip into bear market territory, it’s not a good sign for the major indices like the S&P 500 and the Dow Jones Industrial Average. For more analysis of leading indicators and market internals, try out one of our three premium research offerings.