Transportation Average; A Big Concern For Stock Bulls? [Dow Jones Industrial Average, SPDR S&P 500 ETF Trust]

transportationChris Ciovacco:  Weakness In Transports In 2015.  If you follow the markets, you have probably heard about the “non-confirmation” warning being flashed by the fact the Dow Transportation Average has failed to post a new high simultaneously with the Dow Jones Industrial Average.

Dow Theory Is Useful

We have written about Dow Theory many times in the past; a July 2014 article explains the economic rationale behind the theory. We believe Dow Theory is useful, but it is one of many sources of information.

Is It A Showstopper?

We will answer the question above with a few historical charts. Charts allow us to reference facts rather than human bias or emotions. If I showed you the chart below, it would represent a “non-confirmation” period since the Dow Transportation Average has failed to push to a new high. We have removed the dates from the chart below to minimize historical bias.

How Did The S&P 500 Do Over The Same Period?

The chart below shows the exact same period as the Transportation chart above. Did a new bear market start during the period of non-confirmation? Would it have made sense to sell all our stocks because the Dow Transports failed to make a new high? Answers: No and No. In fact, the non-confirmation was not particularly insightful or helpful at all since the S&P 500 gained 25% over the same period.

Bringing The Charts Together

The chart below allows you to see both indexes together.

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