Dow Jones Transportation Average Breaks Above Major Resistance

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Jim Donnelly, Olson Global Markets

Despite overbought conditions on monthly bar charts, the Dow Jones
Transportation Average (DJT) broke above long-term channel-top
resistance currently sitting at 7,240. This is an important event all
by itself, but to Dow theorists this bullish breakout has even more
meaning.  Dow Theory purports that transportation stocks must lead
industrial stocks in order to confirm and advance a bullish trend in
the broader markets. This facet of Dow Theory implies that the
movement and delivery of an increased amount of goods suggests that
industrial producers are manufacturing an increased amount of things;
or that raw materials are being shipped to destinations that need
those materials in order to make more things. As such, the DJT is
considered to be an important leading indicator for the direction of
equity prices in general.

That being said, overbought conditions are a concern. A solid break
back below former channel-top resistance at 7,240 could be interpreted
as a false breakout. On the other hand, further advances in the Dow
Jones Transportation Average would likely increase investor confidence
and could trigger a new round of equity-buying activity. Even more
interesting is that when searching for the next major resistance
target, trend line resistance at the 9,500 level is a distinct
possibility. That level, if it were reached, would represent a 24%
advance from the 7,469 close of Friday.



Support from within the ranks of Dow Jones Transportation Average
comes from: JB Hunt Transport Services Inc. (JBHT), Alaska Air Group,
Inc. (ALK), Kirby Corporation (KEX), Delta Air Lines Inc. (DAL), FedEx
Corporation (FDX), United Parcel Service, Inc. (UPS) and Kansas City
Southern (KSU) each of which has scored an all-time high during the
past month or so. Others, like JetBlue Airways Corporation (JBLU) and
Con-way Inc. (CNW) have either bullishly broken out of recognizable
technical pattern or are about to do so.

Clearly, the tapering plans of the Federal Reserve have weighed on
market psychology in recent weeks. Nevertheless, over the next few
months the Fed will still be injecting another $200B dollars into the
economy with the Japanese central bank adding a similar amount of
monetary stimulus. That, along with a lot of cash still sitting in
short-term fixed-income investments could team up to send equity
prices higher still.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: News Headlines , US Markets , Economy , Stocks


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