ARE TRANSPORTS FLASHING A FALSE BUY SIGNAL?
Interesting read in yesterdays Journal on the Transports. Readers know that I am fond of following the REAL economy – consumer trends and blue collar jobs such as trucking score high on my scale of economic importance. Lately, we’ve been seeing an odd trend. The transport stocks and the general market tend to be trending higher despite little to no signs of strength in actual consumer spending or real economy industries like trucking and rails. The Journal writes:
A new high for transports would “confirm,” in technical lingo, a similar peak for the Dow industrials this week. According to the school of market analysis called Dow Theory, which arises from the ruminations of Wall Street Journal co-founder Charles Dow, having the Dow industrials and the Dow transports in such harmony is strong evidence a bull market is cooking.
But this indicator can send false signals. It was bullish in the spring of 2008, just before the transports and industrials tumbled together.
And reading these charts is a subjective art. Ryan Detrick, technical strategist at Schaeffer’s Investment Research, notes that one could take the view that transports have lagged behind the industrials all year, often a warning sign for stocks. And transports have a good reason for lagging behind: Transportation hasn’t caught up to other recent signs of economic recovery.
One measure of this is the number of railroad cars being loaded with coal, auto parts and other stuff at the nation’s major railroads. Car loadings this year are down nearly 20% from the same period in 2008, putting this on pace to be the worst year since 1982, according to the Association of American Railroads.
The AAR on Thursday reported that loadings jumped last week to their highest levels in nine weeks. But loadings have zigzagged up and down within a downward trend since March, even as transport stocks have risen. Ordinarily, transport stocks and car loadings are more closely correlated, said Ed Yardeni, chief investment strategist at Yardeni Research.
“The plunge in rail-car loadings,” Mr. Yardeni recently told clients, “is one of the most glaring nonconfirmation signals for those of us rooting for an economic recovery and a sustainable bull market.”
The King of Dow Theory sounds equally pessimistic, despite near confirmation in the Dow Theory buy signal. Yesterday, Richard Russell wrote:
The non-confirming Transports have finally caught the attention of today’s Wall Street Journal. The Journal talks about freight-car loadings. The association of American Railroads reports that “loadings have zigzagged up and down within a downward trend since March. The plunge in rail-car loadings is one of the most glaring non-confirmation signals for those of us rooting for an economic recovery and a sustainable bull market.” Russell comment — The falling freight-car loadings may tell us something about the refusal of the Transports to confirm.
Into the weekend, and the mystery lingers on. My PTI was up 2 to 5899 while its MA was 5875. But the big news from a Dow Theory standpoint was that the Transports closed down 38, leaving them 43 points below their May 6 breakout level of 3404.11. Many subscribers haven’t taken the Transport non-confirmation seriously. But it’s now over a month since the Transports have refused to confirm. Frankly, I’m surprised that the Fed hasn’t manipulated the Transport Average and forced it to confirm, after all there are only 20 Transport stocks in that Average, and manipulation would be easy, but then again — maybe the Fed doesn’t follow Dow Theory.
Despite what the technicals might say it’s difficult to argue with the actual numbers. Retail sales are still very weak and there is absolutely positively no recovery in the rail data.
you mean the markets rise is disconnected from the fundamentals….
HELLO, me, you, Hussman, Tice….(list goes on)…your neighbor, friend….
we all know that….
and that is the what half your blog is about…..
its all about confidence
my friends….all dollar cost averagers…..are in a world of hope….
its about confidence…..
We are a disaster (dont know what) away from more market declines….but so far the disaster is me and my short portfolio…..
game is rigged, fix is in (on the banks)
i guess until the hedgies start shorting them (in the face of govt bitch slapping) they wont go down
and the tech bubble is fermenting
im dont with my rant
thanks for the site…..
-E
TPC, does it bother anyone that Fed manipulation is assumed by everyone.
Get these clowns out of our markets!!
E, I find that hilarious. I got temporarily heavy short going into the weekend.
You’ve gotta respect the price action. This is one tough bull market we’re seeing. Although I think that we will be right in the long-run you have to respect the near-term price action.
I still have that small SP short on, but I don’t feel good about it until June ends. Then I’ll revisit the short side and likely get aggressive. As for now, the price action is just too powerful and the herd is in a full sprint for the cliff….
the mkt looks likes its topping, but who the heck knows….
can you remember the last time the mkt closed 50 pts lower….well the dow did i think -250 about two weeks ago and maybe a -61? this week….im just guessing, and i might be wrong, but it sure feels like its up up and away…day after day after day
i am short a ton T O N of nas 100….
how many times in the past 2 weeks has the nazzy been down say -22, -29, -27 interday, only to end -3, or -7, or even +14…. (no sense even waiting for devil’s hour (from 3:00-4:00) to see the real action, might as well wait till 3:50 to really see how it goes….
as for manipulation….the govt removed the systematic failure risk with implied bank rescue at all costs…(well, no cost to the bond holders….or even common share holders….my god…MY GOD….HOW CAN THE COMMON SHARES NOT BE WIPED OUT???!!!????….they are not even a creditor….banks are INSOLVENT….
the govt is backing survival so equity should be Z E R O ! ! ! !
ahhhhhh
i rant everyday…….
the worst part of it is when a co-worker says….”hey its a bull market, are you in yet? still short? market is up….recession to end”
the general public does not get it
AHHHHHHHHHHHHHHHHHH
Pres, sorry about that, put your name in the box, meant is here
should read
E, says (need edit button TPC)
he mkt looks likes its topping, but who the heck knows….
can you remember the last time the mkt closed 50 pts lower….well the dow did i think -250 about two weeks ago and maybe a -61? this week….im just guessing, and i might be wrong, but it sure feels like its up up and away…day after day after day
i am short a ton T O N of nas 100….
how many times in the past 2 weeks has the nazzy been down say -22, -29, -27 interday, only to end -3, or -7, or even +14…. (no sense even waiting for devil’s hour (from 3:00-4:00) to see the real action, might as well wait till 3:50 to really see how it goes….
as for manipulation….the govt removed the systematic failure risk with implied bank rescue at all costs…(well, no cost to the bond holders….or even common share holders….my god…MY GOD….HOW CAN THE COMMON SHARES NOT BE WIPED OUT???!!!????….they are not even a creditor….banks are INSOLVENT….
the govt is backing survival so equity should be Z E R O ! ! ! !
ahhhhhh
i rant everyday…….
the worst part of it is when a co-worker says….”hey its a bull market, are you in yet? still short? market is up….recession to end”
the general public does not get it
AHHHHHHHHHHHHHHHHHH
Haven’t looked into changing the comments section yet. I’ll get around to it at some point. This new layout is still being tweaked every day….
No one gets it, E, it’s frigging scary. TPC, I hear you, trust me, I lightened up AH a bit on my shorts because I didn’t want too much exposure. Also, this is no bull market, just a very very powerful bear market rally.
Let’s see, when the news broke about Iran’s elections, that shot us up about 4-5 points on the snp instantly, now that the old bastard one and they’re falling into chaos, what’s that good for, another 10-20 point bump. This market is nothing but a casino right now except for short plays that should eventually work out, just make sure there’s not a lot of decay on shorts you plan to hold for a while, because it is impossible to know when this thing tumbles.
But should I feel comfortable about buying SPYs after a 40% runup!!! Off of nothing. I think not.
love following the transports as leading economic indicators. problem is, they seem to be following the same ‘play the perception, not the reality’ mentality floating around right now. as you’ve said, gotta respect the price action.
will continue to monitor the transports though. BDI is another signal I’ll watch, but less closely since there’s other external factors affecting the bulk shippers. Good old straight up rails and trucks are the way to go for the purest indication.
MARKET QUOTES
MARKET NEWS
THIS WEEKS MOST POPULAR STORIES
© 2009 pragcap.com · Login.
Home · Advertise · Contact us · Disclaimer ·