Timing can improve your investment results and Charles Dow knew that better than anyone else 100 years ago. Some say that timing is everything, but it isn`t. Timing is interpretation. To watch the swings of the stock market are more important than ever for protecting your hard-earned investments.
Some investors are negative and some are positive. Positive investors say that the economy is good, but how do we know that? The strong rally lately is being led higher by economically sensitive groups like transports. I like to watch the Dow Jones Transportation Average Index (DJTA), which is closely watched to confirm the state of the U.S economy.
Chart
As you can see from the chart above, the transports take what the industrials make, and that simply confirm the trend of the Dow Jones Industrial Average (DJIA). DJIA will follow DJTA. In other words; if the DJTA is declining while the DOW is climbing, it may signal economic weakness ahead.
What you see in the transportation industry affects almost all other industries covered in the DJI. Wal-Mart and Home Depot (on the DJI) rely on transportation shipments to stock their stores. Also Coca-Cola, IBM and Caterpillar use transportation. Transportation providers can bid for higher contract prices, making their own outlook more positive and causing the DJT to rally. At the same time, the anticipated outlook of the transportation industry`s customers is reflected in its stock prices and the performance of the DJI follows DJT.
It may be a divergence in the two indices and if you see that signal, you know that the demand for transport is falling, which means the nationwide demand for goods is declining too. A bad sign. It didn`t look good at the beginning of September this year, but it turned up again 15 days later.
Airlines and railroads outperform the broader market and continue to expand revenue. In the last five days, the transportation stocks are up 6,24%, while S&P 500 is up only the half. Transportation stocks will continue to move higher as the energy price remain low. Dow Jones Transportation Average is up +15,18% YTD.
The best performer on the list so far in 2014 is Delta Air lines (DAL), which is up +41,57% YTD, followd by Alaska Air Group (ALK), up 37,14%. Avis Budget Group (CAR) is up +31,10% YTD, while FedEx Corp (FDX) is up only +13,40% YTD.
The economy continue to improve and a good indicator is, among others, the strong third-quarter earnings from Caterpillar yesterday. Caterpillar reported better than expected results in the third quarter and lifted its profits outlook for the year to $6,50 a share, up 5,5%.
Some popular ETF funds is iShares Dow Jones Transportation Average Fund (IYT), which represents the most popular way to track the transport sector. The fund manager have invested in a small basket of 21 securities, and this fund is heavily exposed to the railroad industry.
SPDR S&P Transportation ETF (XTN) is another one, with 39 securities in the basket. This fund is heavily exposed to trucking and airlines. The fund has been a good performer since they started the rally in November 2012.
Guggenheim Shipping ETF (SEA) is the worst performing ETF on the list. The fund tracks 27 shipping company stocks with high degree of risk.
If you want to check where the economy and the DJI stands, make sure to check the DJT as well. If the DJI is up while the DJT is down, you know that something is wrong, but right now, DJT is up about 16% YTD, while DJI is up about 1% YTD.
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Ket Garden
Shiny bull 