For most of 2012, weakness in the Transports vs. the greater stock market was a concern, but now that it’s the other way around, MoneyShow’s Tom Aspray explores what this switch might be signaling now.
Many in the financial press since have focused on the ability of the Dow Transportation Average to finally surpass its all time highs from May 2008. I follow the Dow Jones Transportation Average quite closely as it is one gauge I use to determine the overall health of the stock market.
The divergence between the Dow Industrials and the Dow Transports had me concerned last September, One Sector Sends a Strong Warning, as I knew the participation of the Transports was needed for a truly healthy market.
Since the middle of last month the iShares Dow Jones Transportation Average (IYT) is up 10.5% while the SPDR Diamond Trust (DIA), which tracks the Dow was only up 4%. The Spyder Trust (SPY) over the same time period has gained 4.9%.
The Dow Industrial Average is still 3.5% below October 11, 2007 high of 14,198, so should investors be concerned?
Chart Analysis: I have found that one of the cleanest ways to compare the two market averages is to look at the weekly close only charts.
The weekly chart of the iShares Dow Jones Transportation Average (IYT) shows the breakout of the trading channel, lines c and d, which preceded it’s upward acceleration.
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