LIVE MARKETS-Dow Transports: From clunker to Ferrari?

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DOW TRANSPORTS: FROM CLUNKER TO FERRARI?

Last Thursday, the Dow Jones Industrial Average .DJI scored its 18th record-closing high of 2025. With this, bulls are eyeing the Dow Jones Transportation Average .DJT to see if it can confirm the industrial average's push to record highs.

Decades ago, a body of work known as Dow Theory provided a foundation for technical analysis and the study of market trends. It includes six tenets, one of which is that the market averages must confirm their trends.

To this end, the theory used the Dow Jones Industrial Average and the Dow Jones Transportation Average on the assumption that amid healthy business conditions, as a DJI advance would suggest, the rails would benefit from hauling freight, and therefore, the DJT would also be trending higher.

Obviously over time, the makeup of both the DJI and DJT, as well as the economy as a whole, has changed dramatically. However, followers of this theory point to a spooky pattern - that just since the late 1990s, a number of record peaks in the DJT preceded numerous DJI record peaks, leading to significant DJI corrections and bear markets.

As it stands, it's now been 384 calendar days since the last DJT record close on November 25, 2024.

Of note, however, the transports have been significantly outperforming recently. Over the last three weeks, the DJT has advanced more than 9%, well outpacing the DJI's 4.8% gain, a 4.1% rally in the Nasdaq Composite .IXIC and a 3.4% gain in the benchmark S&P 500 index .SPX.

With this, the DJT ended Friday at 17,504.57, which puts it down just 1.41% from its 17,754.38 November 25, 2024, record close.

Based on the Dow Theory, bulls might breathe a little easier if the DJT is finally able to drive to new highs.

(Terence Gabriel)

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