Dow Theory

[wanswheel]

Excerpt from the Daily Reckoning (Australia)

http://www.dailyreckoning.com.au/key-market-signal-shows-stock-collapse-has-only-just-begun/2015/08/24/

A 100-year old theory has once again been signaling all is not well.

How does ore get to China? How do all those electronic goods get onto the floor of Harvey Norman? How did all those foreign cars get into the dealer’s showroom? How do all those business people and travelers move from city to city? How does the wool from the sheep’s back end up as a pullover on your back?

Most of us do not really ponder these questions too deeply. The answers are all too obvious — planes, trains, automobiles and ships. So what’s the big deal?

The movement of commodities, goods and people are an indication of economic activity.

During the GFC, ships stayed anchored because banks did not trust each other’s credit. Would you transport millions of dollars of cargo if you knew there was a serious question mark over payment? Not likely. Transportation makes the world go round. The health of the transport sector is a time honoured indicator of what’s happening in the real world.

The Dow Theory, established over a century ago by Charles Dow, was based around splitting industrial shares (Dow Jones Industrial index) and transport shares (Dow Transportation Index) into these two separate averages.

The logic behind this theory is simple. Industrial companies produce things that are transported around the nation and world. Even tech companies like Apple must ship their laptops, phones and watches to their retail stores.

According to the theory, movements on one average must be confirmed by the other.

Under Dow theory a major change in trend from a bear to a bull market (or vice versa) cannot be confirmed unless both these averages are in agreement.

The Dow Transportation Index (DJT) contains major shipping companies, railroads and air freight carriers. Companies such as Avis, Delta Airlines, FedEx and United Parcel Service.

At major turning points in the recent history of the US market share, the DJT has been the canary in the mine.

 

 

 

[NorthWest]

Interesting, and thanks for posting. The current markets do seem concerning.

I wonder what railroads are used now-probably the Class Is and IIs?

I also find it interesting that the BRT and ME are included in the listing, as they were primarily dependent on employment which would falter only during a collapse. In 1901, the ME didn't have long in the world.

[wanswheel]

CSX, KCS, NS and UP are on the list, Oct. 1, 2014.

http://www.djaverages.com/docs-private/level2/Dow_Jones_Transportation_Average_Historical_Components_Report.pdf

[rrnut282]

I have my own un-scientific method.  I compare car counts on the same trains over time as they go by my backdoor.  I'm seeing fewer 100+ car trains these days. 

[MP173]

Mike:

I am with you on the car count.  Also, scanners on the CSX and CN will provide total axle counts.  There are several common trains which will provide a pretty good indication of where the economy is (noted that certain days this is based on "events").  Certain NS intermodals have been consistent over the years, but now are dropping in number of containers/trailers.  

There is definately a slowdown occuring.

Also, take a look at the weekly AAR carloadings for the railroads.  These provide a very vivid picture of what is occuring on a weekly, quarterly, and YTD basis compared to the previous year.  Coal is down 25% for most carriers now.  OUCH.

Ed

[schlimm]

NorthWest

I wonder what railroads are used now-probably the Class Is and IIs?

Current composition of the DJ Transportation Index  (20 companies) has four railroads:

Corporation	Ticker	Industry
Alaska Air Group, Inc.	ALK	airlines
Avis Budget Group, Inc.	CAR	rental and leasing services
C.H. Robinson Worldwide, Inc.	CHRW	trucking
Con-Way, Inc.	CNW	trucking
CSX Corp.	CSX	railroads
Delta Air Lines.	DAL	airlines
Expeditors International	EXPD	delivery services
FedEx Corporation	FDX	delivery services
JB Hunt Transport Services, Inc.	JBHT	trucking
JetBlue Airways Corp.	JBLU	airlines
Kansas City Southern	KSU	railroads
Kirby Corp.	KEX	marine transportation
Landstar System, Inc.	LSTR	trucking
Matson, Inc.	MATX	marine transportation
Norfolk Southern Corp.	NSC	railroads
Ryder System, Inc.	R	transportation services
Southwest Airlines, Inc.	LUV	airlines
Union Pacific Corp.	UNP	railroads
United Continental Holdings	UAL	airlines
United Parcel Service, Inc.