Here’s what Dow Theory tells us about today’s market

It’s best not to forget history You are receiving this email because you signed up to receive emails from True Market Insiders, rebranding to Sector Edge. [Unsubscribe here]( Keep the emails you value from falling into your spam folder. [Whitelist True Market Insiders](. Forgot your login information? Click [here](. EDITOR’S NOTE: I’m sharing some market analysis from the team over at Avalon today. From time to time, I like to give you a behind-the-scenes look at what clients at money management firms come to expect from their investing teams. What Can Dow Theory Tell Us About Today’s Market? Dow Theory is one of the oldest techniques in market analysis and was created by Charles Dow in the 1880s, yet it’s just as relevant today as it was when he put pen to paper. Charles Dow invented the first two stock market indexes – the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA). In Dow’s time, transports were limited to just nine railroad stocks. Of course, over the years the Transport index has evolved to include Airlines, Trucking, and Shipping. Dow’s thinking was that in a healthy economy, both industrial and transportation stocks should be rising together. A growing economy would require more products (produced by the industrial companies) and then these products had to get to market via the transportation companies. One doesn’t function independently of the other. And Dow intended his indexes to be used as an indicator of economic strength. Dow Theory holds that the 30 stocks of the Dow Jones Industrial Average and the 20 stocks of the Dow Jones Transportation Average must rise together in a strong economy. If one of the averages lags behind the other too far for too long, or worse yet, forms a negative divergence, an economic and stock market peak may be around the proverbial corner. Dow Theory purists will tell you, the first signs of trouble occur when either the DJIA or the DJTA hit a new high, but the other index does not. It’s best not to forget history. During the bull market of 2003 to 2007, Industrials and Transports moved in unison. However, that relationship changed in the summer months of 2007, and turned out to be a warning sign to anyone astute enough to see it. In July 2007, both the DJIA and the DJTA made new highs. Into July and August, both averages retreated, followed by Industrials breaking out to new highs in October. But Transports did not come close to matching their summer highs. And bingo – there was your divergence and a clear message to the markets. It was that divergence between Industrials and Transports in the 4th Quarter of 2007 that was a warning sign that the current bull market was on borrowed time. That divergence showed goods were not being transported at the same rate they were being produced, suggesting a decline in nationwide demand. Something to know about transportation stocks – these are considered economically sensitive stocks, meaning they are tied to the business cycle. So they’re especially sensitive to a slowing economy. If demand for goods begins to slow, there are fewer goods to transport. And that’s what happened back in 2007, well before the Great Financial Crisis crash in 2008. So that’s history… Now, what can Dow Theory tell us about today’s market? Are Dow Industrials and Transports suggesting an economic slowdown? Is Inflation, higher interest rates, inverted yield curves, or even headline-grabbing layoffs by some of the biggest employers a reason for alarm? Conventional wisdom would say so. But let's check the charts! Bottom line: With both Transports and Industrials moving higher, there is nothing in the current relationship to suggest there is a problem on the horizon. However, don’t turn a blind eye to the impact of Fed policy. Just because we’re not seeing price deterioration hit the equity markets today, does not mean we won't sometime in the future. And that’s why we’ll keep a close eye on this relationship and any other that may lead to a different conclusion. But until we see some kind of deterioration under the surface, investors can continue to look for opportunities – while always remaining vigilant when it comes to position-sizing and risk management. It’s interesting that as of this writing, Industrials have worked their way back into the four strongest sectors, while Transportation - Non-Air is the strongest industry group. We’re currently seeing both Relative Strength and absolute outperformance from Industrials and Transports. Industrials are a very diverse sector and the most correlated to the broader S&P 500. These are the industry groups in the sector to consider. And here are the current 20 stocks that make up the Dow Jones Transportation Average. - Alaska Air Group, Inc. (ALK) - American Airlines Group Inc. (AAL) - Avis Budget Group, Inc. (CAR) - C.H. Robinson Worldwide, Inc. (CHRW) - CSX Corp. (CSX) - Delta Air Lines, Inc. (DAL) - Expeditors International of Washington, Inc. (EXPD) - FedEx Corp. (FDX) - J.B. Hunt Transport Services, Inc. (JBHT) - JetBlue Airways Corp. (JBLU) - Kansas City Southern (KSU) - Kirby Corp. (KEX) - Landstar System, Inc. (LSTR) - Matson, Inc. (MATX) - Norfolk Southern Corp. (NSC) - Ryder System, Inc. (R) - Southwest Airlines Co. (LUV) - Union Pacific Corporation (UNP) - United Airlines Holdings, Inc. (UAL) - United Parcel Service (UPS) Or you may want to look into one of these ETFs to gain exposure to Transports. Investors have a choice: Is it Don’t Fight the Fed or Don’t Fight the Tape? Stock prices have been moving higher for months now in spite of Fed policy and recession worries. You can sit on your hands and wait for a recession that may come or you can participate in rising prices until it’s time not to. But we’re not about to let you do it all on your own… The team at Avalon is dedicated to seeing people succeed, so we send ADAPT every week with market insights from a responsible money management perspective – not just one-off stock ideas. If you’d like to hear more from us and get a behind-the-scenes look at how we’re investing our clients’ money, [go here and sign up now](. It’s your only way to get Intel on major shifts in the stock market and asset categories right to your inbox to help you make more informed investment decisions. Not to brag, but we sold our stocks and bonds back in April of 2022 and went into cash for a horrific couple of months – saving our clients incredible losses. If you were subscribed to ADAPT, you would have been privy to that shift too, and able to make the move for yourself to help you hedge against inflation and loss. [Click to subscribe and join us now]( – we look forward to talking to you more soon. DISCLAIMER: True Market Insiders sent this to you on behalf of a third party, Avalon, a registered investment advisor. Avalon and True Market Insiders are separate entities. Neither company owns the other. Both companies are owned by Chris Rowe. This article is an advertisement to sign up for a free e-letter called ADAPT, which is published by Avalon. True Market Insiders is NOT a registered investment advisor and is not licensed to give advice. True Market Insiders is a financial publishing firm that broadcasts and publishes educational investment material for educational purposes only. You can [change your preferences here]( DISCLAIMER ©2023 by True Market Insiders, LLC, Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of: True Market Insiders, 7901 4th St. N STE 6113 St. Petersburg, FL 33702. The information contained herein has been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this material without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions. True Market Insiders LLC is not an investment advisor and is not licensed to give specific financial advice. The chairman of True Market Insiders, Chris Rowe, is also the CEO, CIO and owner of Rowe Wealth Management LLC, which is not owned by and is not the owner of True Market Insiders. For more detailed information you can click here: [Website]( | [Discourse & Privacy Policy]( If you'd like to unsubscribe and stop receiving these emails [click here](.