All's Well If Transports Keep Trucking
This column was originally published on RealMoney on July 17 at 10:30 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Very early in my trading career, I studied the Dow Theory developed by Charles Dow. As much as anything else, it helped me make sense of the market because it is a combination of technical analysis and market philosophy. It put the pictures I was seeing into a real world context that explained them.
The Dow Theory can be used to identify broad market trends in the Dow Jones Industrial Average and Dow Jones Transportation Average. In very simple terms, an uptrend in the market is confirmed when both averages are making higher highs. A downtrend is marked by lower lows in both.
The industrial and transportation averages are extremely useful in signaling trend reversals because of their broad representation across the economic spectrum.In simple terms, the industrial average consists of companies that make stuff; the transportation average consists of companies that move that stuff to market. You can see how it pays to keep track of them.
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