Opinion: What the curiously strong Dow Transports say about stocks
By Mark Hulbert
Published: Feb 17, 2016 5:24 a.m. ET
The Transports and the broader Dow Industrials are diverging, which is a bullish sign
CHAPEL HILL, N.C. (MarketWatch) â One of the most bullish sub-surface developments in the stock market is the surprising strength of the Dow Jones Transportation Average.
Whereas the broader Dow Jones Industrial Average DJIA, +1.39% has fallen 1.6% in February, the Dow Transports DJT, +2.28% are sitting on a 4.4% gain. (See the chart at the top of this column.) Itâs unusual for a divergence this large â 6 percentage points â to materialize over so short a period.
One reason this divergence is bullish: The Transports tend to be a decent leading indicator. A recent case in point came in mid-December: Thatâs when I wrote that the Transports were âunusually weak.â As we know now, the broad market at that time was about to suffer a 10%-plus correction.
This is just one data point, of course, but there is more systematic evidence that supports the notion that the transportation sector is a good leading indicator. Consider a study conducted by the Bureau of Transportation Statistics in the U.S. Department of Transportation, titled âThe Freight Transportation Services Index as a Leading Economic Indicator.â The studyâs authors concluded that this index over the past three decades âled slowdowns in the economy by an average of four to five months.â
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The data the article posted was just this month, but historically I'm seeing a lot of minor divergence and never w/ no particular signal lurking.