We occassionally show the Dow Jones Transportation Index as something you should ALWAYS keep in your peripheral vision. It is amazing how it is able to avoid the short-term "chatter" and focus on the BIG PICTURE. So what does this chart say about the BIG PICTURE today?
I certainly recognize that the companies that are included in this index have international exposure, so that is measured in their predictive chart action. But at the same time, their lead characteristic is weighted based on U.S. economic prospects.
In the chart above, you can see that market top made in 1998 and 1999. As the S&P 500, and especially the tech-heavy NASDAQ were soaring in 2000, the Dow Transports sent a message about the evolution by failing to tag along in that new high territory. But in 2003 it rallied vigorously and in 2005, it made a new all-time high - the first one in 6 years. It continued into 2007, but in 2008, the index got smashed along with most other stocks in the financial collapse. In fact, it got hit even harder than the S&P 500 in that period. But over the next two years, the BIG message from the Transports was that steps had been taken to avoid a 1930s-like Depression as it touched a new all-time high.
What is today's message? It is not completely over with yet, but in concert with our Asset Allocation Model, it is setting up a great consolidation pattern that our guesstimated scenario for the next few years says will break out above as this upcoming Presidential election campaign plays out. IF it does, the ramifications of this visual display tells us that we have completed the learning phase of "fixing the problem areas," and we will be proceeding into the implementation phase. It also says that the great season from 1980 to 1998-1999 that we enjoyed also hid the growing problems under the camouflage. But you only learn from being disciplined...and bear markets are extreme discipline. We learned from that 2000-2003 spanking and most certainly from the 2007-2008 affair.
The correction and implementation phase is not totally obviouis in this rebellious teenager yet, but the discipline most certainly has him thinking about changing his ways.
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