Mark Hulbert of Marketwatch: The Transports have been the stronger of the two benchmarks, and it is widely considered to be a leading economic indicator. Read the article HERE.
There is a lot of talk in the news right now about a potential market crash. This fear is fueled for many reasons, one of which is that the Dow Jones Industrial Index remains relatively strong while the Dow Jones Transportation Index has fallen. This is known as “Divergence.” While it is troubling, make sure you have a clear understanding and strategy before you buy into the hype and sell out of the market.
One of the core tenets of the Dow Theory is the need for confirmation. If the stocks compromising the Industrial Index move significantly upward, the Dow Theory is loath to call a “bull market” until the stocks compromising the Transportation Index move upwards as well. Originally the Transportation Index was comprised of railroad stocks which primarily moved the consumer goods that the Industrial companies made.
Even though the Transportation Index is no longer solely comprised of railroads, companies such as UPS and FedEx as well as airlines, truckers, etc.still transport goods from the Industrial companies to consumers. The Transportation Index has been falling of late and this can be an indicator that the Industrial Index may fall as well. However, as we have said in our book and our newest newsletter, “the primary trend is assumed to continue until definitely proven otherwise.”
Don’t be caught off guard! Know the strategy, follow our newsletter, and invest wisely!
There has been renewed interest in the Dow Theory since Jack Schannep presented his research to the Market Technicians Association that showed Dow Theory produced an excess return of 1.5% per year (from 1953 thru 2011) versus a buy and hold strategy. His presentation attracted a whole new generation of Dow Theory enthusiasts. Read the article HERE.