The Dow Report: Another Look at the Industrials and the Transports
By Tim W Wood CPA, May 27, 2005
Today I want to take a quick look at the Industrials vs. the Transports and then I want to look at the Transports vs. some of the other shipping indexes. In the first chart below we have the Dow Jones Industrial Average and the Dow Jones Transportation Average. As you should all know, it is these two indexes that we use in our Dow theory work. On April 14, 2005 both of these averages fell below their January 2005 secondary reaction low points. When this occurred it put both of the averages "in gear" with each other and realigned the secondary trend with the primary trend. To date, nothing has happened to change or invalidate this setup. Therefore, according to Dow theory there have been absolutely no changes in the longer-term outlook for the averages.
Now I want to look a little closer once again at a few of the various transportation indexes and compare their performance with that of the Dow Jones Transportation Average. In the chart below we have the Dow Jones Transportation Average in the upper window and the Dow Jones Marine Transports in the lower window. The last time we looked at this I mentioned the fact that the Dow Jones Marine Index had not moved below its January secondary reaction low point. Therefore, this index has not confirmed, so to speak, the Dow Jones Transportation Index. This non-confirmation between these two indexes still exists today.
In the next chart below we have the Dow Jones Transportation Average in the upper window and the Dow Jones Railroad Index. in the lower window. It may be a little hard for you to see in this chart, but the Railroad Index did marginally violate its January secondary reaction low point. According to Dow theory, any violation on a closing basis is valid. Therefore, this marginal violation does serve to confirm the Dow Jones Transportation Average, which means that these two indexes are �in gear� and this remains the case today as well.
Next we have the Dow Jones Transportation Average and the Dow Jones Trucking Index. The Trucking Index also violated its January secondary reaction low point, so these averages are also "in gear."
Now, the reason that I am bringing these charts up again is to show you that in spite of the flashy rally, which has occurred out of the April lows, nothing has really changed. Both the Transports and the Industrials remain in gear to the downside. And two of the three Transportation indexes are still in gear with the Dow Jones Transportation Index as well as the Dow Jones Industrial Average.
Robert Rhea used to say that as long as the averages remain between their previous secondary reaction points, that price movement had no forecasting ability. In all of the indexes above we are sitting between previous secondary reaction points. In turn, this means that the moves below the previous secondary reaction points still stand as valid and that none of the price action that has occurred between these points has done anything to change the fact that the stock market barometer continues to forecast stormy economic conditions.
Tim W. Wood
© 2005 Tim Wood