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Dow Transports: Buying Opportunity?

iStock

The gap between the Dow Jones Industrials Average and the Dow Jones Transportation Average recently reached its widest point in six years.

Since the two stock averages usually move in tandem, what does that mean for the markets?


As history shows, both indexes don't stay this far apart for long. During the two previous instances in the last ten years, these big gaps were followed by a rally in the transports within six months.

In March 2004, for instance, the transports rallied within a few weeks and ended up 31 percent for the year. And in September 2006, transports bounced back from their temporary low and posted a gain of 8.7 percent within four months.

Since the Dow industrials have rallied 11 percent so far this year, while the transports are up only 2.6 percent, the charts seem to indicate that the transports may be primed for a big upturn.

That may already be happening. During Wednesday's trading session, the transports rose above their 200-day moving average for the first time in about a month, rising 5 percent so far in October.