Great Sign as Bulls Loading Up on Transports

By Kate Gibson, MarketWatch
NEW YORK (MarketWatch) -- One wouldn't necessarily know it in looking at the U.S. stock market Tuesday, but investors were recently sent a bullish signal by what has long been viewed as a leading indicator of how the economy is faring.

"You can have a bubble in a lot of markets, but if it's not confirmed by the Dow transports, then there is not actual commerce happening," said Art Hogan, chief market strategist at Jefferies & Co.


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Coming on the heels of the Dow Jones Industrial Average(INDU 10,303, +16.70, +0.16%) tallying on Nov. 25 its closing high for 2009, the Dow Jones Transportation Average (DJT 4,037, -18.40, -0.45%) on Friday closed at 4,101.76, its high mark for the year.

On Tuesday, the transport index fell 0.1% to 4,055.11, while the major stock indexes retreated more steeply as the U.S. dollar strengthened. See Currencies.

"We spent two months agreeing that when the dollar goes down, stocks and commodities go up. This is a short-term reversal of a very tired trade," added Hogan.

After Monday's close, delivery giant FedEx Corp. (FDX 88.67, -1.21, -1.35%) released upbeat quarterly results and raised its outlook, bolstering hopes for a recovery among those that view the company's business as a proxy for the economy at large.

"Amid this sea of red, we're seeing FedEx up on the back of very strong earnings," said Richard Ross, technical strategist at Auerbach Grayson & Co.

It's always nice for the fundamental story to support the technical picture," he noted of the results from FedEx, one of 20 components on the transport index, but one that represents 10% of its market valuation. Shares of the shipper climbed 2.7% to $89.88.

YRC Worldwide is being ousted from the index because its plans for financial restructuring could lead the trucking giant to file for bankruptcy protection -- which would disqualify it from any of Dow's indexes, the index provider said Tuesday.

Shares of YRC declined more than 13% to end at 99 cents, while shares of Delta slid 2.8% to finish at $9.88.

"The transports are the first pillar of technical analysis that has a lot of historical relevance," commented Ross. "When the transports break to a new high and the Dow's also breaking to a new high, it's a very important signal that can't be denied."
Kate Gibson is a reporter for MarketWatch, based in New York.