The Dow Jones Transportation Average is on a tear, hitting a new all-time high on Thursday. So far this year, transports are leading the gains, up 13 percent compared to a 7 percent increase for the Dow Jones Industrial Average.
Should investors take any clues from this trend? According to the Dow Theory, when both indexes move in tandem and trade around the new highs, it signals strength and confirms a bullish pattern.
The last time the Dow transports outperformed the Dow Industrials in the first two months of the year was back in 2006. In that year, transports rose 16.3 percent, while the industrials rose 8.7 percent.
Historically, transports posted an average increase of 21 percent when the index outperformed industrials in the first two months of the year (Industrials were up 15 percent, on average).
According to Morningstar Commodity Data, that pattern has been consistently observed in the market over 90 percent of the time since 1932.
In fact, there were only three instances in history when the Dow Industrial average had a negative year given a strong performance by the Dow transport average in the first two months of the year.