We warned readers a while back to closely watch 5 leading markets which were at major inflection points, one of them being transportation.

The reason the transportation sector is important for the whole investment community is that it is a leading indicator for stock markets, but also overall market strength.

Right now, transportations are looking weak. The chart below makes the point. After a rise to all-time highs in February and March, transportations fell back to the important 9000 area. Where transportations go from here will largely determine the stock market outlook.

Interestingly, when analyzing below chart, it looks like transportations are ready to break down. However, a breakdown is only breakdown once confirmed. This sector can still move higher from here, even if it does not look strong.

In case of a breakdown, stock markets as a whole will be weak.

The first support area kicks in at 8250 points, a decline of almost 10 percent. In such a scenario the stock market index can also fall some 5 to 7 percent in our humble opinion, after which things have to be evaluated based on intermarket dynamics.

Investors watch closely what happens at 8900 points and, if relevant, at 8250 points in the transportation index.