Schannep Timing Indicator

ANNANDALE, Va. (MarketWatch) -- The Dow Jones Transportation Average came incredibly close Thursday to jumping over a very bullish hurdle.

I'm referring to the 4,998.95 level; the Transports closed just 0.20 of a point shy of it.

Of course, it's anybody's guess when the Dow Jones Transportation Average will finally clear this hurdle. But it's testimony to the strength of this stock market that we're even talking about this possibility, since as recently as a month or two ago it seemed all but out of the question.

It is the Dow Theory that gives the 4,998.95 level for the Dow Jones Transportation Average such significance. That theory, of course, is the oldest market-timing system still in widespread use today, and a bit of background will help us understand why this particular Dow Jones Transportation Average level is so important.

The Dow Theory's adherents do not always agree on all aspects of their interpretations. But the Theory's general outline is clear enough: A bull market is confirmed when both the Dow Jones Industrial Average and the Dow Jones Transportation Average jointly reach significant new highs, while a bear market is signaled when both averages reach significant new lows.

Market turning points occur when the two averages trend in opposite directions -- "non confirmations" in Dow Theory parlance.

It was the potential for just such a nonconfirmation that had many Dow Theorists worried over the past couple of months. Even though the Dow Jones Industrial Average reached a new high in early October, and continued to set record after record in the subsequent weeks and months, the Dow Jones Transportation Average remained below its previous high of 4,998.95, which was set May 9.

In fact, because the Dow Jones Transportation Average was not just a little bit below its previous high, but a long ways below - 10% or more on various occasions in recent months - some Dow Theorists began to talk openly about an imminent Dow Theory sell signal - as recently as late December.

But the Dow Jones Transportation Average did the improbable, and began to claw its way back towards its all-time high. It closed Thursday at 4,998.75. If and when the Dow Jones Transportation Average does close above its previous all-time high, the bull market would apparently be confirmed according to the Dow Theory.

Not surprisingly, two of the three Dow Theory letters I currently monitor have indicated that they would invest some of their cash reserves in the stock market when the Dow Jones Transportation Average does close above the 4,998.95 level. These two letters are Dow Theory Forecasts, edited by Richard Moroney, and TheDowTheory.com, edited by Jack Schannep.

It is less clear what the reaction will be of the third Dow Theory newsletter I track. I'm referring to Richard Russell, editor of Dow Theory Letters,
who has remained stubbornly bearish in the face of the stock market's strength in recent years.

Russell since October has made a big deal of the Dow Jones Transportation Average's refusal to confirm the Dow Jones Industrial Average 's new highs. And though that would seem to imply that he would turn more bullish if and when such a confirmation were to occur, Russell hinted Thursday night that he might not do so:

"The only market I know of that compares to this one," Russell wrote, "occurred in the 1930's when the Dow (Industrials) plowed ahead while the Transports (Rails in those days) refused for months to confirm. Robert Rhea, the great Dow Theorist of that time, wrote that maybe if or when the Rails finally do confirm, the advance will be very close to its end. I wouldn't bet on that happening this time, but the thought has occurred to me."

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

	MARK HULBERT Those amazing Transports Commentary: Dow average close jumping very bullish hurdle
By Mark Hulbert, MarketWatch Last Update: 12:01 AM ET Feb 2, 2007
ANNANDALE, Va. (MarketWatch) -- The Dow Jones Transportation Average came incredibly close Thursday to jumping over a very bullish hurdle. I'm referring to the 4,998.95 level; the Transports closed just 0.20 of a point shy of it. Of course, it's anybody's guess when the Dow Jones Transportation Average will finally clear this hurdle. But it's testimony to the strength of this stock market that we're even talking about this possibility, since as recently as a month or two ago it seemed all but out of the question. It is the Dow Theory that gives the 4,998.95 level for the Dow Jones Transportation Average such significance. That theory, of course, is the oldest market-timing system still in widespread use today, and a bit of background will help us understand why this particular Dow Jones Transportation Average level is so important. The Dow Theory's adherents do not always agree on all aspects of their interpretations. But the Theory's general outline is clear enough: A bull market is confirmed when both the Dow Jones Industrial Average and the Dow Jones Transportation Average jointly reach significant new highs, while a bear market is signaled when both averages reach significant new lows. Market turning points occur when the two averages trend in opposite directions -- "non confirmations" in Dow Theory parlance. It was the potential for just such a nonconfirmation that had many Dow Theorists worried over the past couple of months. Even though the Dow Jones Industrial Average reached a new high in early October, and continued to set record after record in the subsequent weeks and months, the Dow Jones Transportation Average remained below its previous high of 4,998.95, which was set May 9. In fact, because the Dow Jones Transportation Average was not just a little bit below its previous high, but a long ways below - 10% or more on various occasions in recent months - some Dow Theorists began to talk openly about an imminent Dow Theory sell signal - as recently as late December. But the Dow Jones Transportation Average did the improbable, and began to claw its way back towards its all-time high. It closed Thursday at 4,998.75. If and when the Dow Jones Transportation Average does close above its previous all-time high, the bull market would apparently be confirmed according to the Dow Theory. Not surprisingly, two of the three Dow Theory letters I currently monitor have indicated that they would invest some of their cash reserves in the stock market when the Dow Jones Transportation Average does close above the 4,998.95 level. These two letters are Dow Theory Forecasts, edited by Richard Moroney, and TheDowTheory.com, edited by Jack Schannep. It is less clear what the reaction will be of the third Dow Theory newsletter I track. I'm referring to Richard Russell, editor of Dow Theory Letters, who has remained stubbornly bearish in the face of the stock market's strength in recent years. Russell since October has made a big deal of the Dow Jones Transportation Average's refusal to confirm the Dow Jones Industrial Average 's new highs. And though that would seem to imply that he would turn more bullish if and when such a confirmation were to occur, Russell hinted Thursday night that he might not do so: "The only market I know of that compares to this one," Russell wrote, "occurred in the 1930's when the Dow (Industrials) plowed ahead while the Transports (Rails in those days) refused for months to confirm. Robert Rhea, the great Dow Theorist of that time, wrote that maybe if or when the Rails finally do confirm, the advance will be very close to its end. I wouldn't bet on that happening this time, but the thought has occurred to me." Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.