ARE TRANSPORTS FLASHING A FALSE BUY SIGNAL?
by ilene - June 13th, 2009 2:54 pm
ARE TRANSPORTS FLASHING A FALSE BUY SIGNAL?
Courtesy of The Pragmatic Capitalist
Interesting read in yesterdays Journal on the Transports. Readers know that I am fond of following the REAL economy – consumer trends and blue collar jobs such as trucking score high on my scale of economic importance. Lately, we’ve been seeing an odd trend. The transport stocks and the general market tend to be trending higher despite little to no signs of strength in actual consumer spending or real economy industries like trucking and rails. The Journal writes:
A new high for transports would “confirm,” in technical lingo, a similar peak for the Dow industrials this week. According to the school of market analysis called Dow Theory, which arises from the ruminations of Wall Street Journal co-founder Charles Dow, having the Dow industrials and the Dow transports in such harmony is strong evidence a bull market is cooking.
But this indicator can send false signals. It was bullish in the spring of 2008, just before the transports and industrials tumbled together.
And reading these charts is a subjective art. Ryan Detrick, technical strategist at Schaeffer’s Investment Research, notes that one could take the view that transports have lagged behind the industrials all year, often a warning sign for stocks. And transports have a good reason for lagging behind: Transportation hasn’t caught up to other recent signs of economic recovery.
One measure of this is the number of railroad cars being loaded with coal, auto parts and other stuff at the nation’s major railroads. Car loadings this year are down nearly 20% from the same period in 2008, putting this on pace to be the worst year since 1982, according to the Association of American Railroads.
The AAR on Thursday reported that loadings jumped last week to their highest levels in nine weeks. But loadings have zigzagged up and down within a downward trend since March, even as transport stocks have risen. Ordinarily, transport stocks and car loadings are more closely correlated, said Ed Yardeni, chief investment strategist at Yardeni Research.
“The plunge in rail-car loadings,” Mr. Yardeni recently told clients, “is one of the most glaring nonconfirmation signals for those of us rooting for an economic recovery and a sustainable bull market.”
The King of Dow Theory sounds equally pessimistic, despite near confirmation in the
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
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