The Dow Report: A Look at the Transports
By Tim W Wood CPA, October 14, 2005
According to Dow theory, the Primary Trend remains bearish and the Secondary Trend remains bullish. Yet, on a very short-term basis the averages are not "in gear." This is true because the Dow Jones Industrial Average has violated the most recent support levels as noted in red on the chart below, while the Dow Jones Transport Average has thus far held above its corresponding low.
On a slightly longer-term basis, the Industrials have also violated the short-term low that was made in early July. The corresponding low for the Transports occurred in late June. The fact that the Transports have also held above this level puts the averages out of gear or out of sync with each other at two levels. This non-confirmation that we are now seeing with the averages not confirming each other on this short-term level could then be either a sign of a bottom, or it could simply mean that the Industrials are leading the decline.
Let's now dig a little deeper into the Transports. In the next chart below we have the Dow Jones Transportation Average in the upper window and the Dow Jones Trucking Average in the lower window. These two charts are in near perfect sync telling us that the Trucking industry is still holding up rather well when compared to the broader based Transportation Average.
Below we have the Dow Jones Transportation Average in the upper window and the Dow Jones Railroad Average in the lower window. Here we are seeing that the Railroads are actually outperforming the broader based Transportation Average.
Next, we have the Dow Jones Transportation Average in the upper window and the Dow Jones Marine Transportation Average in the lower window. The Marine Transportation Average is by far the weakest of the transportation sectors from a structural perspective. Not only has this index violated its September support level, but that level occurred below the June support level.
In looking at specific transportation sectors, I have included a chart of the Dow Jones Transportation Average and the Dow Jones Air Freight Average in the chart below. Just as with the Marine Average, the Air Freight Average has violated its June support level, but it is presently holding above its September support level.
So, this leaves us with the Dow Jones Industrial Average breaking short-term support levels, while the Dow Jones Transportation Average is holding onto its corresponding support levels. Yet, when we peal back the layers of the Transportation Average we find that the Rails are by far the strongest and that the Trucking Average is par for the course with the overall Transports. But, the Marine and Air Transporters are beginning to slow down and the breakdown has already begun. So, within the Transportation sector, the averages are not "in gear" either.
Robert Rhea use to say that when the averages are not in gear they are shouting be careful. It seems that the Rails, and to a lesser degree, the Trucking sector is carrying the weight of the overall Dow Jones Transportation Average. If weakness seen by the Marine and Air Transports spills over into the Rails and the Trucking sector, then we should expect the Transports to get back in gear with the Industrials.
With the Industrials closing this week at December 2003 levels, ask yourself, where is the "New Bull Market?" Just as the "Stock Market Barometer" has been saying all along, there are stormy conditions ahead. It looks like a category 5 hurricane to me, but just as with many of the people in New Orleans, many failed to listen to those warnings. Those who understand the Dow theory understand the meaning of these warnings. Those who choose to ignore these warnings will learn the hard way, and just as with Hurricane Katrina they will then want to blame everyone else for their lack of understanding or preparedness.
If you would like to know more about the technical conditions of the market, including specific timing windows for price, price targets, trend expectations, and more, then Cycles News & Views is that source. The October issue is a beefy 25 pages and covers these issues in great detail. For more information please visit www.cyclesman.com.
Tim W. Wood
© 2005 Tim Wood