SHOOT: They might be if there was a convergence in manufacturing profits and shipping/transport activity. Manufacturing profits are up, but thanks to job cuts. Transport is flat. What does that tell you?
What's really fueling this rally? Is it market fundamentals or is it market speculation?
Over 100 years ago, Charles Dow - founder of the Wall Street Journal and inventor of the Dow Jones Averages - devised the Dow Theory to find the answer.
According to Dow's calculations, the manufacturing and transportation sectors would mutually confirm a new bull or bear market. His idea was based on the premise that manufacturing profits are connected to increased production. Increased production would be based on higher demand which would be reflected by an uptick in shipping/transport activity. Are you following?
To Charles Dow, a bull market in industrials could not happen unless the Transportation Average (a measure of demand) rallied alongside the industrials (and vice versa). A harmonious rise would unequivocally confirm a strengthening economy. Anything else would be suspect.
What about now?
In September, the total U.S. railway carloadings declined 22% year-over-year. |
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