The Nasdaq & Transportation Index Diverge In Big A Way Which Can Signal A Weakening Economy

On Friday, June 4, a very interesting divergence between the Nasdaq and the Transportation Index setup, which highlights the uncertainty related to the continued global market recovery trade.

With the Nasdaq rallying over 200 points and reaching levels near critical resistance, near $13,775, the Transportation Index collapsed over -150 points and briefly tested critical support near $15,350. What would prompt this type of movement in these indexes?

I believe the recovery/reflation trade has already run it’s course and we are starting to move into a complacency phase with regards to future economic activity and output. Consumers are already fairly settled after the past 15+ months of COVID-19 lockdowns. They’ve either adjusted to the new work-at-home requirements or they have relocated into areas that allow them to move forward with their lives without having to expend more capital.

For those who were not able to make these moves already, the inflationary impact on consumer prices of homes, commodities, food, and other items may keep them from making any big financial decisions as they continue to try to deal with higher costs.

The markets, meanwhile, continue to attempt to engage in a rally phase that has been driven by euphoric expectations related to the recovery/reflation of the global economy. There are, however, still a few speed bumps ahead that may change how traders perceive opportunity.

First, Basel III (new regulations come into effect June 27) will come to disrupt the global banking constructs and may send precious metals skyrocketing as it threatens how banks and others report physical and non-physical precious metals supplies. This is very important for traders to understand because the impacts on global central banks and how the markets react to this disruption are still unknown.

Second, as Basel III moves closer to disrupting the markets, we believe the markets will start to see liquidity and volatility issues as traders shuffle capital around in an attempt to avoid the unknown factors throughout the rest of 2021.

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