A lot has been made this year of the weakness in the Dow Jones Transportation sector. There has been a lot of excellent info and commentary by both sides as everyone weighs in on what this may mean to equity returns in the near future. I think it is safe to say that more are leaning towards the perception that this weakness bodes poorly for stocks at least in the near term. While this may in fact be true, let’s take a look at the recent price action using the daily chart above.
During the September-October 2014 correction, the Dow Jones Transportation average fell approximately 1,000 pts or 11.64%. Then proceeded to rally 1600 pts or 20.9% to a new high on December 2014. After consolidating for a few months, price broke down below a series of multiple lows.
Now as of Friday’s low the Dow Jones Transportation average has matched the size of 2014’s correction and closed the unfilled gap which was 10/22/14’s settlement price. It’s possible that the Transports may be nearing a bottom and for the contrarian, actually present a good buying opportunity.
As always it’s good to keep things in perspective. As traders we tend to look at short term charts but in order to give entirely objective analysis and recommendations, I believe it’s best to take a step back. For instance, much has been made of year to date weakness in the transports. However if we look back a little and include 2014 into our analysis we see that the Transports still show solid outperformance over the Dow Jones Industrial Average…..
…and in line performance with the S+P 500, even with this year’s weakness.
Let’s also not forget that as the S+P 500 sports a solid 200%+ gain off the 2009 lows, the Transports show a gain of 330%+ during that same time horizon. I have no idea how this will all play out. It’s a good thing to stay abreast of market themes but it’s not always beneficial to overweight near term market movements.