What the oldest stock market index is telling us today?

ELK GROVE, Calif. - March 30, 2015 - PRLog -- Mark Hulbert wrote this article for MarketWatch on Thursday the 29th of January discussing how oil has and has not affected market sectors.
    (Source: http://www.marketwatch.com/story/what-the-oldest-stock-market-index-is-telling-us-2015-01-28?link=MW_popular)

He shows a five week chart that chronicles the fall of oil and it's impact on the Dow Jones Transportation Average, the oldest stock market index. Many believe that a drop in oil is a net positive for the economy, however the below chart shows a different story. Oil has dropped over these five week and yet the Dow Transportation has also dropped almost 2% over the same time.


Many day to day investors might ignore this chart or merely listen to headlines that dropping oil is a positive for consumers who pay less to fill up their tank but the "transports are a leading indicator of economic downturns".

"The transportation sector's track record as a leading indicator was documented several years ago by the Bureau of Transportation Statistics in the U.S. Department of Transportation, titled "The Freight Transportation Services Index as a Leading Indicator."

This study showed that for thirty years the index was a leading indicator and ran ahead of slowdown by four to five months which would put us at about the "sell in May" tag line. It is important to note that the data included in the Freight index is presented with a lag, so it is showing data from about November.

The Freight Transportation Services Index and the Dow Jones Transportation Average are different indexes but they are correlated in a major way. The Average Index that gets a lot of attention because it is one of the indexes included in the Dow Theory, "the oldest stock market timing system in widespread use today".

Only time will tell when these indexes signal the bull market is officially over. "As of Tuesday's close of trading, the Dow Industrials were 4% below its all-time high, and the Transports were 4.1% below a record.

Matt Golab
Aaron Matthews Financial Resources

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