Thursday, April 10, 2008

You Have an Old Friend in the Dow Jones Transport Index

Good Thursday morning. The Dow Jones Transportation (DJT) Index is a blue-ribbon forecasting tool monitored by many wise traders and investors. The DJT Index was created by Charles Dow in 1884, at a time when railroads were just as big as the Internet Superhighway today, perhaps even bigger. The Index as initially formulated was made up of 11 stocks, of which nine were railroads.

http://en.wikipedia.org/wiki/Dow_Jones_Transportation_Average


Interestingly, the S&P 500 Index is the most often quoted leading indicator of the U.S. economy, yet the DJT Index is 67 years its’ senior. This Yahoo "maximum" time frame chart doesn't even go back to its beginning in 1884:


http://finance.yahoo.com/q/ta?s=%5EDJT&t=my&l=on&z=l&q=l&p=&a=&c=%5EGSPC


Today's DJT Index is made up of 20 stocks of which only four are railroads: Burlington Northern (BNI), CSX Corp (CSX), Norfolk Southern (NSC), and Union Pacific (UNP). The other 16 stocks are airlines, trucking, and shipping (have you ever heard of Alexander Baldwin [ALEX])? If you believe in a free market system, free-trade and increased globalization going forward, maybe ALEX won't leave you on dry land...


With trade exploding due to the democratization of more and more third world countries, transport costs are on the rise and require monitoring. With diesel breaking all time highs in the spot market of late, is it any wonder why the transport Index is a rational leading indicator?


Although Corporate Financial executives (CFOs) are attempting to find the perfect model of operation and efficiency, with oil at $110.00 a barrel, their jobs have become stressful and difficult. We feel for them. On the flip side, many of their peer executives must worry instead about retaining customers and increasing market share. A barrel of crude oil has risen 67% in the last 52 weeks, although some economists argue that 20% of that move is risk premium or speculation. Regardless, a 67% rise in any cost is NOT good for the consumer -needless to say - and isn't it the consumer that drives the economy in the end? (And at the beginning, as well!)


http://www.wtrg.com/daily/crudeoilprice.html


The DJT Index is a corner stone of market history. While you can buy thousands of stocks that are not part of the actual DJT Index, just about every stock you end up with is at the mercy of transport costs. If you share our optimism in mankind’s future innovations, such as wind, solar, or any other type of ‘green’ energy, you’re still left at square one; the delivery of these efficiencies from point A to point B. So, please give some more respect to the DJT Index. After all, it is has stood the test of Time, the ultimate, truly inexorable judge. We thank you for your attention to the Psychology of this Call.

3 comments:

Anonymous said...

I bought ISRG on your mention a week ago, will it go higher? I'm up 6% so far from $340

Anonymous said...

Why would anyone buy inthis market with the credit losses still coming? Shorting sounds better. Garmin up this morn but I still like the short.

The Call Team said...

We appreciate the kind words. Please let your friends know about Psychology of the Call.
Live Genentech (DNA) CC on tap after market close, analsyis will follow.