Monday, September 17, 2007

Transportation Indexes Aren't Looking Good

I'm a big fan of Dow Theory. The basic idea is simple. If an economy is doing well it will have to move stuff from point A to point B. This is true in a manufacturing economy (where raw materials are transported to a factory and finished goods are transported to the market) and a consumer economy (where goods have to be shipped to the place consumers purchase goods). The following charts are from which is a great site for charts and graphs.

The trucking sector is already in bad shape. The index clearly broke an upward trend line in mid-July. The index traded around the 200 day SMA for about a month and is now consolidating below the 200 day SMA. The 20 and 50 day SMAs are both moving lower, indicating a high possibility of future price depreciation.

Railroads have been dropping slightly since mid-May. The drop has been gradual. My guess is we're seeing traders slowing peel off profits as they wait for further confirmation of movement in one direction or the other. The 20 and 50 day SMAs are both heading lower. Finally, the index is heading for an important technical area where the uptrend and the 200 day SMA are converging.

In short, both of these stock market areas are giving off sell signals to the broader market.