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A Pivotal Point for the Transportation ETF and the Dow

NEW YORK ( ETF Expert) -- I've listened to scores of prognosticators interpret "Dow Theory" in a variety of different ways.

However, all of them may agree upon one disconcerting reality; specifically, the year-long relative weakness in the Dow Jones Transportation Index could be cause for some concern.

While I do not believe in the semi-simplistic notion that the transportation stocks must lead the way for industrial stocks, I do pay attention when the iShares DJ Transports (IYT) lags the SPDR Dow Jones Industrials ETF (DIA).

The best way to spot trends in that relationship is with the IYT:DIA price ratio.

At first glance, one notices that transportation stocks via IYT have not been weaker relative to the popular DIA since November 2009. Equally apparent, IYT had led DIA higher for the first 18 months. However, the series of "lower highs" for IYT:DIA over the next 18 months demonstrates ongoing weakness for railroad, trucking, air freight and shipping.

The shift may not be all that surprising when we consider the nature of transporters. Most are taking raw goods, unfinished products and natural resources to other corporations... a sign that GDP may expand. Over the last year and a half, however, global growth has waned; fiscal and monetary stimulus has only been modestly effective in reflating brand name stock assets, but less impressive at kicking global GDP into a higher gear.

The question remains, though, should a broader market investor care? If you tend to invest in the S&P 500 or Dow 30 via SPDR S&P 500 (SPY) or the SPDR Dow Industrials, why should you fret weakness in transports, energy, materials and/or natural resources?

The previous two times that the IYT:DIA price ratio reached these depths (i.e., November 2009, October 2011), aggressive stock assets rallied significantly. Most of the global growth story "faves" -- materials, transports, small-cap stocks, emerging market assets - rocketed higher.
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