Keep an Eye on the Transports

With the economic debate currently divided into the so-called “green shoots” or “brown weeds” camps, one of the things that we’ve been paying particular attention to lately is the Dow Jones Transportation Index. It consists of 20 companies that operate in some of the most economically-sensitive industries – railroads, airlines, truckers, air-freight, ocean shipping, etc. Therefore, the performance of this index can be viewed as a real-time economic indicator, offering important clues about the direction of the economy by either confirming or contradicting official economic reports.

So, what are the Transports telling us right now? Over the past few months, the index has rallied in tandem with the rest of the market as stocks have responded to tentative signs of economic stabilization. After taking a breather and moving sideways for several weeks, the Transports are now hovering in a critical spot on their chart where two key moving averages are converging. Whether the Transports succumb to the downward longer-term trend (blue line, 200-day moving average) or if they’re able to ride to new highs on the back of the rising shorter-term trend (brown line, 50-day moving average) should help determine if it’s the green shoots or the brown weeds that will have the upper hand in the coming months.