This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Follow Your Gut, and Dow Theory

NEW YORK ( TheStreet) -- I have heard far too often (to the point of annoyance) that in a digital world, Dow Transportation stocks matter less in terms of their ability to predict where the markets are headed.

It seems as if investors forget that physical goods, including the service personnel that drive the service economy, cannot be transported through a computer. Everything still needs to be shipped.

I'm inclined to believe paying less attention to the Dow Transportation stocks is a big mistake. I am not the first to say this, but instead reiterating advice that has proven reliable and successful.

Specifically, one of the six basic tenets of the Dow Theory is that the Dow Jones Industrial Average and the Dow Jones transportation index should move in the same direction. When the averages diverge, it's a warning that change is coming and likely not positive change.

I feel the warnings issued by FedEx (FDX), Norfolk Southern (NSC) and Caterpillar (CAT) two weeks ago, was the first alarm bell. Unfortunately, this warning was shrugged off by stampeding bulls.

From 1953 to 2011, incorporating the tenets of Dow Theory -- which includes paying attention to the transports -- has produced an excess return of 1.5% annually over a buy and hold strategy. This was the conclusions of a study marking the 160th birthday of Charles Dow. For many years the Dow Theory was discarded, but a newer analysis found that on a risk adjusted basis, Dow Theory delivers alpha.

I would remind investors that alpha works to the downside as well as the upside. That is, losing less than the markets at large is, in the twisted scorekeeping of investors, a win. It's true, investors should never use a single indicator as a guide to decision making.

However, if the trend in transportation stocks is another data point confirming your suspicions, I would urge you to follow your gut and take some risk off the table.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Oliver Pursche is President of Gary Goldberg Financial Services, a boutique money management firm located in Suffern, NY. Additionally, Mr. Pursche is the Co-Portfolio Manager for the GMG Defensive Beta Fund, and a Founding Partner of Montebello Partners, llc. In his role as President of GGFS, and as a member of the GGFS Investment Committee, Mr. Pursche helps oversee the investment portfolio of over 2000 clients with over $500 million dollars in assets. Mr. Pursche frequently provides market and economic commentary on CNBC and Fox Business News, as well as often being interviewed by The Financial Times, US News and World Report, Thomson Reuters, Bloomberg Businessweek, and the Associated Press regarding his and the firms views on the latest market news and events. Mr. Pursche's views on the market and investment strategies have been featured in the Wall Street Journal, Investors Business Daily, Smart Money, USA Today and other national business publications. In addition to writing for, he is also a weekly contributor on and His daily market commentary can be read at or you can listen to him on weekdays at 10:00 AM.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $92.25 -1.10%
FB $118.54 0.62%
GOOG $706.56 0.73%
TSLA $211.83 0.14%
YHOO $36.82 -0.32%


Chart of I:DJI
DOW 17,638.22 -22.49 -0.13%
S&P 500 2,044.40 -6.23 -0.30%
NASDAQ 4,692.2070 -24.8870 -0.53%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs