Derailed or All Aboard? Keep an eye on the transportation index.
The Dow Jones Transportation Index has begun weakening off its highs. While earnings reports from companies such as CSX Corp (“CSX”) and Union Pacific (“UNP”) came in well, we saw their stocks fall off due to weaker forward guidance. We’ve also seen mixed earnings from airliners such as Southwest “LUV”), United (“UAL”), and Delta (“DAL”) and subsequent moves in their stock prices reflect weak sentiment and weak forward guidance. Other components including shipping, ground transportation, and logistics have also weakened. The Moving Average Convergence Divergence (“MACD”), which historically has had a faster momentum signal has already flipped to the downside. The chart above shows how the Transportation Index lead before the dot com bubble in the early 2000’s. It failed its 200-day moving average initially in 1998 and then broke again in 1999. The chart above shows how the Transportation index was a key leading indicator for the financial crisis of 2008 and also a key leading indicator into the turbulent equity markets in 2015 and 2016 that were congruent with the oil crisis. Click here to download as a PDF.
- The Transportation Index has historically been a leading indicator for major moves in broader indices in the past decade.
- Saw some mixed earnings and weak guidance in transportation stocks for 2Q17.
- The Transportation Index began failing key technical levels at the end of 1998 and the beginning of 1999, a precursor to the dot com bubble.
- The Transportation Index began failing key technical levels at the end of 2007, a precursor to the Financial Crisis of 2008.
- Most recently, the Transportation Index failed its 200-day moving average in May of 2015, a precursor to the volatile summer of 2015 in the S&P 500 and through the lows of February 2016 with the oil crisis.
- Recently, the Transportation Index has fallen off its highs and is currently below its 50-day and 100-day moving average, with the 200-day moving average only 100pts below.
- We continue to watch this key index as a leading indicator for weakness in the broader equity markets.
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