Let’s take another trip back to the island…that is Island Bottom formations to be exact. During the Brexit two-day selloff on world bourses, it was the Dow Transports which worried me the most. The Transports topped out in November 2014; well ahead of the rest of the market. They had that look and feel to them on Friday and Monday that they were going to lead the U.S. indices lower once again. Come Tuesday the markets did an about face and for two consecutive days caught that wave higher.

It was the Dow Transports that gapped open higher resulting in a Two-Day Island Bottom. It is the Dow Transports($TRAN) which I will focus my attention the next few days looking for the Island Bottom objective at 7697-7757 to be met.

DOW Transports - Island Formations

Last week, the DAX gave us that Five-Day Island Bottom. We rode that wave for four consecutive days and an 8% move higher. What we learned then is Island formations are the most powerful indicator in technical analysis. I am looking to ride that wave once again in the Transports. And if the Dow Transports are going higher, the other indices will follow. Until further notice, I am bullish the indices once again.

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