Does Anyone Remember Charles Dow?

DJ:DJT   Dow Jones Transportation Average Index
Something interesting happened with the Dow Jones Transportation Average recently. Or, more precisely, didn’t happen. The S&P 500, Nasdaq-100 and Dow Jones Industrial Average all breached their October lows amid this year’s pullbacks. But Transports haven’t even come close to those levels.

Notice how DJT bottomed last week over 14,000. That was 1 percent above its trough near the end of the third quarter and start of the fourth quarter.

Turn back the clock a little further to the late 1800s, when Charles Dow famously noticed that railroads and shipping stocks could confirm moves in the broader market. In the current case, “Dow Theory” may be providing non-confirmation of weakness. And that could be bullish.

Second, consider the converging trendlines as DJT eased lower. Is that a falling wedge, another potentially bullish reversal pattern?

Finally, you have the bigger picture because Transports are a classically cyclical part of the market that often benefit from a strong economy. With Covid cases falling, the U.S. reopening and the spring/summer approaching, investors may view Transports as a potential beneficiary.

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