I have a different take than Dan Fitzpatrick on the current chart of the transportation average, as expressed by Jim Cramer on his "Mad Money" TV show Tuesday.

In explaining the basic concept of Dow Theory, Cramer said that the transports will often lead the major average, and that we may be seeing that happening on the current charts.

The transports are important to monitor in the context of the


and there are numerous historical examples of a reaction high in one index leading the other index.

There are examples when the theory fails, as in, the July 2006 to October 2006, when the Dow rallied about 1,000 points and the transports fell about the same amount.

I find, empirically, that the theory, in today's market, does a better job at confirming a trend then calling a change in market direction.

The transportation average has been in a range since late August while the Dow has continued on trend. It might have appeared that the stall in the transports would be a precursor to a fall in the Dow. That was certainly the case the first week in November when the transports fell dramatically and were testing the bottom of their range. The Dow appeared ready to break down through its uptrend line.

Then Warren Buffet came to the rescue.

Berkshire Hathaway

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announced the purchase of

Burlington Northern


and the price of the railroad stock jumped more than 29% in one day. The heavy weighting of the railroad in the transport average skewed the chart and saved the day.

There was more good news later in the month with the International Air Transport Association reporting that air freight volumes were stabilizing with carriers in all regions reporting improving trends. On Dec. 1, Cathay Pacific announced that its freight rates had increased threefold in the past three months. The transport chart, temporarily, broke up through channel resistance.

While the


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news on Monday, however, was decidedly positive, the market reaction in the transports and the Dow was less enthusiastic. Bad reaction to good news is never good. The transports now look like they are moving back into their consolidation zone and the Dow, though still above its uptrend line, has been treading water for a month.

In my opinion, the transports would have broken down in early November if it had not been for the BNI announcement and the effect on the average. How this would have affected the Dow is open to conjecture. It is hard for an "old technician" to say but I think the transport chart is not giving an accurate picture at this exact moment and that it will not lead higher.

Robert Moreno is a former member of the New York Cotton Exchange and the New York Board of Trade. He has traded for his own account for over 25 years. An experienced market technician and student of the art since the days of paper charts and manual computation, he authored a daily technical analysis information sheet popular with brokers and traders in the "pits." Currently, he is a General Partner at Wyckoff Investment Partners, LLC, which provides technical and fundamental research and analysis to traders and investors.