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November 22, 2005

Shoring up the Dow transports, Tues., Nov. 22, 2005, 11:03 AM

Do you recall the article I wrote on September 26 about the Dow Jones Transports Average, which had made big changes, replacing DAL and NWAC with OSG and JBLU. The problem I have is that a changed index is a bastardized one. Clearly, it's value has declined if long-term trend and cycles analysis is important to you.

So today I get a chuckle out of so-called investment analysts who point to technical confirmation of the bull market rally" in the Dow Industrials by the Dow Transports. They best they can say is that the New Transports" have rallied.

And even at that I have my doubts the move in the Transports has much to do with the U.S. economy.

Here is a 2-month chart (from just prior to the change in the DJ Transport Average) and a 6-month chart from ADVFN that shows the behavior of these transportation stocks. Please note that after the losers were removed the index started to move higher.

The same thing happened when Dow Jones & Co decided in 2H99 to remove the Dogs of the Dow and replace them with winners. I wrote it up at that time in my Dow 30 Journal (which I'll add here later) to show that the breakdown in the equity market was being masked.

And boy, wasn't it.

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Exactly six years ago this week (Nov. 20, 1999 Week #46), the Dow 30 was 11003, and I was challenging the Masters of the Dow to give us the truth about the Dow Industrials Average. They had removed the Dogs and replaced them with winners. I said at the time that the break-down in the Dow 30 was being masked.

The article that follows this one (i.e., Week #47-1999), I will be reproducing in text (not a gif), because I want readers to see what I was doing at the top of the Distribution Zone" late in 4Q99 " just prior to the onset of the 2000-2003 Bear Market, which I warned about for months in my web journal.

Posted by Posted by Bill Cara on November 22, 2005 11:03:38 AM | Category: U.S. Equities

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