Insights

Guess What Index Just Broke Out

Over a century ago, Charles Dow said it’s bullish when transportation stocks hit new highs. That’s exactly what they’re doing today.

So-called “Dow Theory” teaches that different parts of the market can confirm each other. This is especially true with economically sensitive transportation companies because they often track the business cycle.

Simply put, a rally in railroads, airlines and truckers, indicates sentiment will be bullish in other parts of the market like industrials and consumer goods. (Charles Dow, by the way, founded The Wall Street Journal and is the namesake of countless indexes.)

In December, TradeStation’s data science team in December used this approach to predict the broader market would make new highs in 2018. It proved correct only a few weeks later.

Then came the February’s jarring selloff. Other key indexes clawed back and gradually made new highs: The Nasdaq-100 in March, the Russell 2000 small caps in March and S&P 500 in August. Each time, we looked for “confirmation” from the transports – but to no avail. Until today, that is, when the Dow Jones Transportation Index tore decisively through 11,500.

Logistics provider Landstar System (LSTR) is leading the index with a 3 percent gain. XPO Logistics (XPO) is up even more even though it’s not officially in the index.

Remember, rail traffic has been surging for months. And, the shift to intermodal shipping between trains and trucks has played a huge role in this growth.

Guess what index_graphArca Airline Index ($XAL) with moving averages.

Airlines have also been on the move since early July as bookings rebound. Maybe that’s why the 50-day moving average on NYSE’s Arca Airline Index is finally rising.

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. But a classic bullish signal seems to be at play as investors return to their desks for the homestretch between Labor Day and Thanksgiving.


This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 10/09/2018.

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