DJTA's Relentless Strength: One of the Great Index Mysteries of 2008

by Eric Roseman

As I said yesterday, the Dow Jones Utility Average [DJUA] continues to break down this summer. But while the DJUA sinks, another Dow index continues to hold its ground.

In fact, one of the great index mysteries of 2008 is the relentless strength of the Dow Jones Transportation Average or DJTA.

This barometer is up 8.3% this year and traded 9.9% below its all-time high this spring. But for now, the index has failed to confirm Dow Theory because the larger Dow Jones Industrials Average has lagged. It's still off 20% from its high last October and down 14.6% in 2008.

In a bull market, both averages must rise together. But in a bear market, which is where we stand now, the Dow is in the gutter while the Transports remain rather resilient even amid US$125 oil.

I believe what's happening for the Transports is an anomaly. The railroads are leading this index higher this year, mainly because of booming freight revenues as a consequence of surging fuel costs. Other segments of freight are getting smashed, including ground and air transport.

It's only a matter of time until the Transports break down. That freight moving across the country is bound to slow. I see that happening as overseas economies finally break from their dizzy growth rates. When that happens, look for the Transports to confirm the Dow in bear market territory.

Disclosure: none

Comments

[investor88:]

On balance of facts, I tend to agree that the transports index will break down when economies worldwide with the US at the core decelerates further down.

2008 Aug 07 09:37 AM

[Reinko:]

Don't forget that most other stock markets have fallen much more on a year to date basis. In my own country Holland we have far over 20% decline YTD while in the USA where the real problems are concentrated, the DOW decline is much less.

Corrected for other stock markets, the DOW is about 10% or 1200 points too high. But this is what you get with so many computer trading programs I just guess...
Nice stuff those computer trading programs, they work on technical indicators so you do not have to muzzle all that negative news and in thin markets they work wonderfully.

2008 Aug 07 03:28 PM