Weakness In Transports In 2015
If you follow the markets, you have probably heard about the "non-confirmation" warning
being flashed by the fact the Dow Transportation Average has failed to post
a new high simultaneously with the Dow Jones Industrial Average.
Dow Theory Is Useful
We have written about Dow Theory many times in the past; a July 2014 article explains
the economic rationale behind the theory. We believe Dow Theory is useful,
but it is one of many sources of information.
Is It A Showstopper?
We will answer the question above with a few historical charts. Charts allow
us to reference facts rather than human bias or emotions. If I showed you the
chart below, it would represent a "non-confirmation" period since the Dow Transportation
Average has failed to push to a new high. We have removed the dates from the
chart below to minimize historical bias.
How Did The S&P 500 Do Over The Same Period?
The chart below shows the exact same period as the Transportation chart above.
Did a new bear market start during the period of non-confirmation? Would it
have made sense to sell all our stocks because the Dow Transports failed to
make a new high? Answers: No and No. In fact, the non-confirmation was not
particularly insightful or helpful at all since the S&P 500 gained 25%
over the same period.
Bringing The Charts Together
The chart below allows you to see both indexes together. Dow Theory is relevant,
but the fact that the Transports have not made a new high in 2015, taken in
isolation, is not a reason to sprint for the equity exits.
You Can Always Find Bearish Data
If you are bearish, you can always find a chart that supports your personal
outlook. The same can be said for the bullish side of the ledger. It is prudent
to look at any information (bullish or bearish) in the context of a broader
array of useful inputs. Our concerns about the Transports in 2015 would be
greater if more inputs were singing off the same hymnal. That may happen, but
we need to see that data, rather than anticipate it.
Some Other Takes On Trannies
This is a hot topic on Wall Street. You may want to see what others have been
saying:
The Weight Of The Evidence Takes Precedence
We can learn something about the market and economy via the recent weakness
in the Transportation Average, but it is not prudent to make decisions in any
field based on one input viewed in isolation. The links below allow you to
look at the 2015 stock market through a broader lens:
