Market Wrap: Stocks Reverse Early Gains, Close Lower

The market gave up all of its early gains, after waves of profit taking knocked stocks from their highs. It looked like profit taking started in the dry bulk shipping names, then rolled over to hit the ag stocks also. And comments from SanDisk (SNDK) out of a tech conference led to selling in all the tech stocks late in the day as well.

The 2 most important charts for today to me look like the S&P 500 chart and the Dow Transportation Index chart.

The S&P 500 broke through its overhead 200-day moving average this morning, but that move proved unsustainable. This often happens the first time a stock or index test major overhead resistance. It also often marks a natural area for that stock or index to take a little breather. I have been looking for stocks to take a little rest here, and today's action looks like one could be at hand.

But the most surprising chart to me is that of the Dow Transports (TRAN). This index contains all of the railroads, truckers, and shipping stocks that are often the most economically sensitive. This index has also been very sensitive to rises in the price of oil over the years, as fuel costs are the major input costs for most transportation companies.

So it was very surprising to see the continued rise in the transport stocks, in the face of rising oil prices. Today, oil continue to move higher into record territory. But guess what? So did the transport index. The chart shows how the index today made a new high, surpassing the former highs set back in July 2007.

On the surface, this is a very bullish indicator for the strength in the economy as we emerge from this period of weakness. These stocks are looking past the valley, and saying that economic growth will be okay, and that the global economy will continue to hum along next year.

This is a longer-term bullish sign. In the short term, I continue to worry just a bit about the low VIX, which hit lows not seen since last July before reversing much higher. The put/call ratio also opened at very low levels. This makes me think a little shakeout might be in order, just to keep the newly minted bulls on their toes.