Some people have asked me about the divergence between the Dow Transports which peaked in September 2018 and the Dow Industrials which has made new all-time highs in 2019. Dow Theorists warn this is a significant divergence which sets up a potentially bearish “nonconfirmation” where should this continue, then the market could turn this market negative on the major trend. Some warn that this divergence is reminiscent of a similar divergence before the 2000 Dot Com Bubble burst. They argue that the top of that bull market, in March 2000, was predicted by the Dow Transports hitting an all-time high in May 1999, almost a year before the broad market.
The lagging transports have people yelling crash pointing to Dow Theory. That’s because the transportation sector is widely considered to be a leading economic indicator, on the basis that this sector will be among the first to signal coming economic weakness. If you look closely, yes, the Transports peaked in 1928 but they were the leaders in 1907 for example. Then look at 2007 when the Industrials peaked, and the Transports made a new high on the bounce in 2008. The Transports peaked in 1999 in advance of the Dot.COM Bubble, but there is no perfect pattern that provides this relationship as a guaranteed indicator. Nonetheless, stay focused and aware.