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[Keyser Soze]

GETTING TECHNICAL
By MICHAEL KAHN

Dow Theory Suggests Stock Worries Ahead

WE'VE ALL HEARD THE FLAWED EXPRESSION, "this time it's different," with regard to the goings on in the marketplace.

But whether it is valuing companies based on earnings or following the trend in the market, some rules speak to the core of investing and are never different. That's right, never. They may get stretched out of whack for a while, but they always come back. That's why they call it the law of supply and demand and not the suggestion of supply and demand.

In recent weeks, analysts and journalists alike have been talking about the relationship between the Dow Jones Industrial Average and the Dow Jones Transportation Average and its bearish implications for the stock market as a whole. Given the changes in the economy with regard to the importance of transportation in a service economy, as well as the changes within the indexes themselves, the efficacy of one of the oldest and most venerable market analyses has come into question.

Dow Theory, which was derived from the writing of Charles Dow, a co-founder of Dow Jones & Co., the corporate parent of Barron's Online, is a set of analytical tools based on the ebb and flow of market action. Among other things, the theory looks at how the industrial stocks, which make goods, and the transportation stocks, which move goods, trade relative to each other.

The premise is that strength in one of these indexes must be confirmed by strength in the other in order to declare a healthy stock market. When one index sets a new high, as the industrials have done, and the other falls away, as the transports have done, theoretically the bull market is in danger.

The chart of the transports tells the tale (see Chart 1). Both the industrials and the transports peaked in May of last year and made near-term bottoms in the summertime. Most investors know the path of the industrials, as that index exceeded its May 2006 level in September on its way to all-time highs a month later.



But the transport average never made it back to its respective May peak, and while its sister index was pushing ever higher into record territory, it made a technical breakdown in December. Even the recent steep selloff in crude oil has so far not provided lasting relief.

As mentioned earlier, changes to the economy and to the indexes themselves are considered by some to be reason enough to doubt whether this divergence in price action is still meaningful for investors. To be sure, the industrial average contains technology, health-care, financial, and retail stocks versus strictly industrial names.

But I would counter that three quarters of its component stocks still depend on transportation of goods one way or the other. For example, if Home Depot is not selling as much merchandise, it will not buy as much inventory and that affects its suppliers.

Technically, we do not see much of a difference on the charts between the Dow industrials and any number of strictly industrial indexes, such as the Dow Jones U.S. Industrial Goods and Services Index. This correlation tells us that the benchmark "Dow" is still technically relevant in theory and in practice.

There is one more argument to make with regard to changes that occur to indexes over time. Several years ago, the powers that be decided to update the Commodity Research Bureau's (CRB) index of commodity futures prices to more closely reflect the economy. They added a much heavier energy component and reduced the weighting of agricultural and soft commodities. However, the old version did just fine as a forecaster of inflation and interest rates.

What had worked for several decades up until the change still works today. The same goes for other technical analyses. When we strip away all the indicators and the packaging, all we are trying to do is gauge supply and demand.

Many technical theories and techniques are not meant as specific trading triggers, and Dow Theory is in that camp. It provides a framework for the big picture in the market on which more specific trading rules can be applied. In that light, the rally from the summer lows takes on a different tone. Whereas price action remains up, in the context of a bearish Dow Theory, it looks exhausted.

Before closing, this column needs to address the wild action in the first session of the year. Stock indexes, such as the Standard & Poor's 500, scored major intraday failures Wednesday as they rallied hard in the morning and gave it all back by the afternoon.



While the trend from the July low has not been broken, this sort of action suggests that things are changing within the index itself. Failure to hold rallies, falling momentum indicators and lack of participation by the key technology sector, today's semiconductor rally excepted, are all warnings.

Until price action itself starts to head lower, the bears can do nothing but wait. But if Dow Theory, trendline analysis, momentum and a myriad of other time-tested technical techniques still work -- and they will because people tend to take similar actions when faced with similar circumstances -- then this is no time for excessive risk taking.

http://online.barrons.com/public/articl ... weekday_r1

[castelbranco]

Olá Sousa

aqui vai um exemplo da teoria do dow em grafico dow jones e dow transportes, ou seja quando existem divergencias negativas entre o transportes e o industrial a teoria diz que se vai seguir um slowdown economico


fui pesquisar em algumas datas que isso aconteceu em 1990 lá está a divergencia, outra em 2000 e esta agora em que o dow industrial segue atingindo novos maximos e o dow transportes está a ficar para tras dando assim origem a uma divergencia negativa, em algumas outras datas a queda verificou-se ao mesmo tempo que é o caso de 1987 e a ligeira queda de 1994

[Keyser Soze]

If Trucks Aren’t Carrying Anything, Who’s Buying Anything?

Several times we have commented on the transportation names, both for their own investment merits and as an indicator of overall economic activity. Since anything sold from any store is transported there by truck, a slowdown in trucking means stores are seeing no need to stock up. Barry Ritholtz makes that point when discussing the latest American Trucking Association tonnage data at The Big Picture | Truck Tonnage Plummets:

November 2006 marked the single worst month for for-hire truck tonnage since the last recession,” said ATA Chief Economist Bob Costello. “Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8 percent contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesn’t make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.”

Naturally, a tonnage slowdown is bad news for truckers. Investors who are into the relative game, can play the non-asset based names like Landstar (LSTR) and CH Robinson (CHRW). Those who simply prefer positive absolute returns may want to steer clear of the whole group.

Disclosure: Author holds put options on FedEx (FDX) and Union Pacific (UNP) and is short put options on Landstar (LSTR).

http://stockmarketbeat.com/blog1/2006/1 ... -anything/

Truck Tonnage Plummets
in Economy

The American Trucking Associations’ advanced seasonally adjusted for-hire Truck Tonnage Index plunged 3.6 percent in November after falling 1.9 percent in October.

Its no surprise that Transports have been so weak; This is also consistent with a ho-hum holiday shopping season.



From the ATA:

“On a seasonally adjusted basis, the tonnage index fell to 106.8 (2000=100) from 110.8 in October, which is the lowest level since late 2003. The index decreased 8.8 percent compared with a year earlier, marking the largest year-over-year decrease since December 2000. Year-to-date, the truck tonnage index was down 2.8 percent, compared with the same period in 2005. The not seasonally adjusted index decreased 9.5 percent from October to 106.5. . .

November 2006 marked the single worst month for for-hire truck tonnage since the last recession,” said ATA Chief Economist Bob Costello. “Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. The most troubling number is the 8.8 percent contraction from November 2005, despite the fact that year-over-year comparisons are difficult due to the very robust volumes during the same month last year. One month certainly doesn’t make a trend, but if we continue to see year-over-year reductions of similar magnitudes in the next couple of months, it could indicate a greater economic slowdown than economists are projecting at this point.”

Goldilocks My Arse!

http://bigpicture.typepad.com/comments/ ... age_p.html

[Keyser Soze]

continua em contra ciclo com o Dow, S&P e Nasdaq

hoje a FedEx apresentou resultados piores que o esperado e cai 4%