Debunking Dow Theory
Transports have lagged the broad market so far this year, causing many to wonder if that signals an impending economic and market downturn. We do not think so, and our claim is supported by the historical data. As we discuss transports’ efficacy as a leading indicator (so called “Dow Theory”), we provide analysis showing that transports’ weakness in recent decades has actually been a better buy signal for the stock market than a sell signal, and we reiterate our positive view of the industry.
While the situation in Greece is uncertain and very fluid, we do not expect a potential breakup of the Eurozone to cause a recession or bear market in the United States, and we would be looking for opportunities to buy transports stocks — or stocks in general — on significant weakness, should it occur.