A Closer Look at the Transports

I haven't talked about Dow Theory in awhile. Dow theory is one of those really, common sense theories. It goes like this. If the economy is doing well, companies will have to ship more and more stuff from point A to point B. This will benefit the transport sector. The converse is also true. If the economy isn't doing well, companies will ship less and less stuff from point A to point B. This will hurt the transport sector, leading to lower earnings.



On the five year chart, notice the following:

-- The transports were in a clear 4 year uptrend until about 2/3 of the way through 2007.

-- There is a clear trend break last fall.



Above is a closer look at the trend break. This is one of the ways to look at the chart -- a downward sloping channel with some extreme price swings.



Another way to look at it is as a head and shoulders formation. However, a head and shoulders formation is considered a reversal formation. I don't thing the fundamental backdrop warrants thoughts of a price rebound right now.



On the 3-month, SMA chart, notice the following:

-- Prices are below the 200 day SMA which is bear market territory

-- The 200 day SMA is heading lower

-- Prices and the 10, 20 and 50 day SMA are bunched up, indicating no clear direction.

-- Prices have been in about a 7-8 point trading range (79 - 86) for the last month or so. That's a very tight range.