The Dow Jones Industrial Average has climbed back above the 13,000 level to challenge the high from earlier this year. However, weakness in its counterpart, the Dow Jones Transportation Average, has led some to question the rally.
“There are at least two reasons to take the Dow Transports’ weakness seriously. The first is that many claim that the transportation sector often acts as a leading indicator of the overall economy,” writes Mark Hulbert at MarketWatch.
“The other reason to take seriously the pronounced weakness in the Dow Transports: It is one of the two Dow averages on which the venerable Dow Theory is based,” Hulbert observes. “Only new highs that are jointly hit by both averages are considered evidence of a healthy bull market.”
“To be sure, not all Dow Theorists see eye to eye right now on whether the Theory is on a buy or a sell signal. But they all agree that the transports’ weakness is of concern,” Hulbert writes.
Below is a chart of the relative performance of the Transportation ETF versus the Dow. When the chart is falling, the transportation sector is underperforming the Dow.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.