DJ Transportation Average: Red Alert

DJ Transports

Founded in 1884, the Dow Jones Transportation average is the oldest of the major stock market averages in the US, preceding its counterpart the Down Jones Industrial Average by a dozen years.  The average (blue) has recently reversed its outperformance with the Dow (green), threatening the broader rally.  While the Dow and S&P 500 rest only 1% off its yesterday’s peak, the DJ transports are now down 3.5%, Russell 2000 down 2.7% and S&P 400 down 2.4% so far in April.  These averages all rocketed higher through the first quarter, but now fall harder as a new risk-of trade emerges.

This is not the first time the DJ transports have flashed sell signals this year.  Two weeks ago the index had rallied 18.2% since the start of the year and 19% above its 200-day moving average.  Such outstanding relative performance historically precede a market pullback:

Above 200-day mov. avg. Next 2 months return
2 Weeks ago: 19% ?
May 2010: 19% -18%
January 2010: 19% -4%, 1 month: -12%
May 2006: 21% -11%

similarly YTD emerging market like Shanghai, Boevspa and Russia’s RTS are negative while copper is down 9%.  All portend the development of risk-off trades.

One thought on “DJ Transportation Average: Red Alert

  1. Fundamentals don’t look good as well: First quarter earnings are coming up next week and, for the S&P 500: are now expected to decline 1.9%, versus expectations for 1.2% growth in January. Earning expectations have dropped over the past quarter yet stocks have rallied?

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