Transports Outperforming Dow

Apr 29, 2008: 11:46 AM CST

The DJ Transportation Index ($TRANS) is outperforming the Dow Jones index, which is an interesting development that has implications for Dow Theory.

Dow Theory stresses the ‘confirmation’ between the DJ Transports and the DJ Index itself (meaning both must make a higher high to signal a ‘Buy Signal’ and vice versa).

According to the theory, the Transportation Index has completed a higher high but is shy of its July 2007 closing high of 5,400 (which is 200 points away).

If you look back at a weekly chart, the Transports peaked a few months ahead of the market – so are they leading the market higher this time?

Some say that “the transports lead the stock market” which is a general occurence rather than a hard rule.

Nevertheless, the Relative Strength (bottom panel) is increasing as the Transports outperform the Dow Jones Index.

Also, notice how the Transports have supported on successive pullback to its 20 period moving average (the sign of a strong uptrend).

Notice also the ‘higher low’ that the Transports made in March when the Dow retested its January lows.  That was a positive non-confirmation of lower (Dow) prices.

It’s an interesting development that requires further analysis, so be sure to keep your eye on the Transportation index for more potential clues.

(Note:  Railroad stocks are keeping the index higher)

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One Response to “Transports Outperforming Dow”

  1. A Look Inside the Transports | Afraid to Trade.com Blog Says:

    […] Look Inside the Transports May 1, 2008: 11:06 AM CST // As I mentioned previously, the DJ Transportation Average is outperforming the Dow Jones Industrial Average, which generally is bullish for the overall […]