A Leading Economic Indicator that Dates back to the 21st President of the United States

From coast to coast, border to border, & sea to shining sea, a Happy Presidents' Day weekend to all U.S. readers from the Psychology of the Call team. The Dow Jones Transportation (DJT) Index is a trusted leading economic indicator followed by wise men. The index was created by Mr. Charles Dow in 1884 (http://en.wikipedia.org/wiki/Charles_Dow), a time when railroads were as important as today's internet superhighway, perhaps even more so. The index consisted of 11 stocks of which 9 were railroads, and all aboard have been derailed of late ===== = == The deleveraging and divesting of every asset class in the cosmos has not been kind to the transport industry's equity holders, yet this sudden business shock may work to strengthen their business models as the world begins to dig itself out of this unprecedented trough. Today's DJT is made up of 20 stocks of which only 4 are railroads: Burlington Northern (BNI), CSX Corp (CSX), Norfolk Southern (NSC), and Union Pacific (UNP). The other 16 stocks are airlines, trucking, and shipping. http://en.wikipedia.org/wiki/Dow_Jones_Transportation_Average Interestingly enough, today's talking heads insist on quoting the S&P 500 index as the best leading economic indicator; yet the DJT Index is 68 years its’ senior. That takes us back to just after President James A. Garfield (R-20th) became the second U.S. President to be assassinated. The unfortunate event enabled Vice President Chester A. Arthur to power: http://en.wikipedia.org/wiki/Chester_A._Arthur (R-21st) Here's a maximum time frame chart that doesn't even go back to its beginning in 1884:

Since corporate financial officers (CFO) are always striving to lower costs, many today would think their jobs have become easier since oil has fallen over $100/barrel, but that can't be further from the truth.

As CFO's experience this lower cost, the global economic slowdown is taking an even bigger toll on sales, share price, and margins. Profit margins at many of these companies are contracting due to desperate attempts to hedge what was a run-away oil market. Some airline CFO's stock piled crude supplies after it broke through $100/barrel, then $90/barrel, and then $80/barrel, and so on and so on. Thus the current price of sub $40/barrel has them miffed as global deleveraging is causing a domino effect of anemic business with the added burden of a higher cost supply glut in the short-term. Even though the DJT's are a cyclical bunch, they usually signal an economic recovery before most other sectors since they must deliver raw materials from point A to B to point C. The raw materials then become manufactured before eventually being sold at your Best Buy, WalMart, or Sears. The signals aren't looking too positive from a fundamental aspect of late since GDP and unemployment continue to suffer; the short-term technicals aren't giving us any bullish confirmations either. Please notice the DJT's dragging the S&P lower in this 3 month chart, foreshadowing a lower stock market ahead: ^GSPC = S&P 500 ^DJT = Dow Jones Transportation Index

Since the DJT index is a corner stone of market history, forward-thinkers would be wise to follow it and use it in addition to the S&P when setting up pivot points for trades. The financial sector is still a large weight inside the S&P index, and yet it hasn't dragged the S&P below the DJT in the last 3 months. The index is not signaling an economic recovery anytime soon, yet the longer-term(5 year) chart does reveal some fairly solid footing in the 2,700-2,800 range.

While you can invest in thousands of stocks that are not directly part of the DJT, just about every stock you choose will be at the mercy of some transport cost(s). If you share our optimism in an eventual economic recovery, monitor this index in the next few days, weeks and months; it may help you profit... POTC respects the Dow Jones Transportation index because it has stood the test of the most powerful judge, Father Time. We were happy to dust off this little piece from our blog archive. The entire Psychology of the Call team thanks you for the opportunity to educate. We wish you a wonderful three day Presidents' weekend; special wishes to Lance S. J., who will be recovering quickly; thoughts & prayers to the 50 who perished late last night in Buffalo as well. We leave you with a little science, what most successful traders follow in order to evolve/profit: -----------------------------The 11 Commandments of Trading---------------------- 1 Never trade more than 10% of your total capital/account value in any one position. 2 Cash is King, and we recommend keeping a minimum of 30% liquid to take advantage of dislocations and volatility. 3 Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week; defense is of critical importance. 4 Take and enjoy profits of 30% or more. 5 Never fall in love with a stock/option and never force trades or over trade; remember commandment #2. 6 Never accept excuses from corporate management or politicians. 7 Use technicals, fundamentals, politics (policy), & psychology/sentiment from the conference calls to select trades: Psychological Financial Fusion. ~8~ There are two sides to the market, long & short; take advantage of that leverage and trading volatility. 9 Understand & respect the significance of the macro geo-political environment. 10 Unforeseen events/shocks will happen, inverting the market upside down or right side up (remember commandments #1 & #2). 11 All of the above are void without reading the Psychology of the Call.