Chart of the Day (4): Are Transportation Stocks Forecasting An Economic Train Wreck?

Transportations Trigger Dow Theory Sell Signal

Originally called the “Rails”, the Dow Jones Transportation Index is a companion index to the 30 Industrials.

Charles Dow and Edward Jones founded  Dow, Jones and Company in 1901.  They created the Dow Jones Industrials, Rails and went on to co- found the Wall St. Journal.

Dow constructed the Transportations to be a “confirming” index.   If the Industrials are strong, companies that move goods are strong, too.  Dow developed an entire trading system, called “Dow Theory” based on the relationship between the two indexes.  (https://www.investopedia.com/terms/d/dowtheory.asp).

A “Buy” is signaled when the Industrials make a significant NEW high that is confirmed by the Transportations.  A Dow Theory “Sell” occurs when new lows in the Industrials are corroborated by the Transportations. It doesn’t matter which makes the high or low first.

Dow Theory, however, is a bit subjective. Exactly when an index makes a “significant” high may require judgement.  In addition, there may be a time lag between the two indexes, therefore, “confirmation” may not be immediate.

Today was clear.  New significant LOWS in the Industrials were joined by LOWS in the Transportations.  This triggered a DOW THEORY SELL SIGNAL.

New Lows Everywhere

The Transportation Index is a second economic barometer.  It is EVEN more economically sensitive today than ever.  More goods are shipped than ever before.  Global Trading grows every year.

Originally, the Transportations were made up solely of Railroads.  Today, the index includes Truckers, Airlines, Package Shippers and Ocean Freighters.

Transportations are NOT benefitting from lower oil prices.   Oil closed below $50/barrel and is down 35% in two months.  Something is VERY WRONG.    

Most likely, the economy is ALREADY in RECESSION.

In fact, more than 800 companies made new 52 week lows today, the most in years.  The BEAR MARKET is shifting into a higher gear.

Transportation Companies are weak across the board.  Included below in the Slide Show is UPS,  Federal Express, The Airline Index and JB Hunt.   UPS is BY FAR the largest provider of transportation and JB Hunt is the largest trucker.  Every segment of Transportation is weak.

Bear Market Definitions

The term Bear Market does not mean the same to everyone.  The conventional wisdom is that a 20% drop constitutes a “Bear Market”.  A “Correction” is a 10% decline.

Using the 20% criteria, the Russell 2000 crossed into official BEAR MARKET Territory today.  It became the first index to enter “official” BEAR territory.  Odds remain very high that nearly EVERY significant index will be mauled by the BEAR.

If you wish to survive the BEAR, what better way than to “Be Informed, Not Misled”.

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