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%||?|
|January 2010:||19%||-4%, 1 month: -12%|
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.