Dow Transports: Flying Close to the Sun

Andrew Kassen

Dow Transports (DJT, IYT): an index few care to talk about until a major Dow Theory signal trips; or some logistics merger or airline debacle occurs.

Along the lines of the first category, the Transports are receiving some attention for their recent out-performance vis-a-vis the far more widely-followed Dow Industrials (DJIA, YM, DIA).

Indeed, DJT is up almost 12% in the last 10 sessions. The natural question to ask is “why” – to which I have no answer; except that it isn’t all that remarkable, after all: the Dow Transports have been on an unmitigated tear, up as much as +32.5% YTD, which just bests the Russell 2000 (RUT, TF, IWM), a close second up as much 32.15% YTD at last week’s high. Up +19.9% at the YTD market high on 09/18, at its best DJIA doesn’t come close.

Dow Jones Transportation Average (DJT) – Monthly: At Secular Rising Channel Resistance
Dow Transports

What is clear is that the Dow Transports have skyrocketed (as they often do – check out those rallies), straight into fibonacci cluster resistance (purple lines) at secular rising channel resistance (thick silver lines).

This chart is a great example of how monolithic strongly trending markets can be; and how quickly disconcerting breakdowns can unravel them.  From December 1994 to April 1998, DJT rallied 177%. Some were surely pessimistic on Transports, going into that Spring just prior to the LTCM meltdown; but they were few and probably sorely chastened after their futile attempts to short the index’s constituents.  But over the next 6 months, the index gave up almost 38%.

Speaking of 177% – 1995-2000 is justifiably heralded as one of the most impressive bull markets of all time.  And impressive as that performance is, since March 2009 DJT is up 229%.  That’s neck-in-neck with the NASDAQ 100‘s (NDX, NQ, QQQ) recent return to the 61.8% retracement of its March 2000 Dot-Com high near 3300, adding +233% over the same period.

In the context of this monthly chart (i.e. a medium-to-long term time frame) , is this “new paradigm” of bullish resolve typified by the Dow Transports about to be significantly tested?

 

Twitter: @andrewunknown and @seeitmarket

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