Dow Transports Lose Ground to the Industrials

The Dow Theory is something that’s often mentioned in market commentary and on the major financial news channel. At least one component of it is, the confirmation of new highs and lows by the Dow Industrial and Dow Transports. This mythology of using these two indices to provide insight into the ‘health’ of a trend has been around since the early 1900’s when first created by Charles Dow.

To start the month the Dow Industrial Average ($INDU) made a new high however, the Transports ($TRAN) did not confirm the move. Much speculation was passed around for the cause or whether the lack of a new high in Transports was sending a signal that the for the end of the current bull market. You can make up your own mind on whether that’s true or not.

Dow Transport

As far as the ’cause’ of the divergence we can look at momentum as a tool that helped show that may have been the outcome. Below is a weekly chart of the ratio between Transports and Industrials along with a 14-week Relative Strength Index (RSI), which measures momentum. Since November we’ve seen lower highs in the RSI indicator while the Transports led Industrials as shown by the green line rising. This bearish momentum divergence was sending a warning sign that the trend of out-performance for Transports may soon be coming to an end. And that appears to be what’ we are seeing now as Industrials have taken over leadership between these two major Averages.

For those that look for a reason in why markets act the way they do, this may help explain why the Dow was able to make a new high while the Transports have been unsuccessful in hitting one of their own.

Transport DIA

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Five Reasons Why I Don’t Follow Warren Buffett

Warren Buffett’s annual letter came out last week and like most years, investors came running to see what the Oracle of Omaha had to say. I however was not among that crowd. I respect Buffett for all he has accomplished and the impressive track record he has been able to obtain. Warren Buffett is and will always be considered one of the greatest investors of our time but I have very little interest investing like the Oracle.

Barry Ritholtz recently penned an article for Bloomberg citing why you should not try to emulate Warren Buffett. In that vein, here are my five reasons why I simply don’t have an interest in following the path of Buffett.

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Indianapolis Investors Meetup – March 5th

On Thursday March 5th I’ll be co-hosting with Tadas Viskanta, founder and editor of Abnormal Returns, the first Indianapolis Investors & Traders Meetup, sponsored by StockTwits.

If you are in the Indy area and want to come hang out, grab a drink, and meet some other traders we’d love for you to come. We’ll be meeting at the Upland Brewing Company (Carmel Tap House) from 5:30 to 7:30. For more details click here.

Stocktwits meetup MeetUp