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There’s an old-school indicator I don’t check every day, but when I do, it usually tells me something worth knowing.
It’s called Dow Theory, and the basic idea is simple: For a market advance to be real, both the Dow Jones Industrial Average (DJI) and the Dow Jones Transportation Average (DJT) need to confirm the move.
Right now, they’re not.
DJT has been getting hammered while the broader market keeps pushing to new highs. That’s a divergence, and it’s the kind that tends to matter.
Why Transports Matter More Than You Think
Here’s the thing about transportation stocks — they’re a measure of economic strength.
More trucking and delivering means more demand, and more demand means a stronger economy. When trucks are rolling and freight is moving, that’s real activity. When they’re not, something’s off.
I looked at specific trucking companies recently, and they’re all getting beat up. That’s not just one or two names having a bad quarter — it’s the whole sector.
Rising diesel prices only add to the pressure. Fuel is a major transportation cost, and companies aren’t going to absorb all of it. Eventually, much of that expense gets passed along to consumers, making everyday goods more expensive and putting another strain on demand.
The pressure isn’t limited to trucking, either. Shipping companies are also dealing with soaring insurance costs along critical trade routes such as the Strait of Hormuz.
In some cases, insuring vessels moving through the region can reportedly cost around $1 million a day. Those expenses ripple through the supply chain before landing in the prices businesses and consumers pay.
According to Dow Theory, when DJT goes down like this, the broader indexes often roll over and follow it lower. The transports lead, and the market catches up.
What I’m Watching Now
I don’t follow Dow Theory all that closely on a day-to-day basis, but I respect what it’s telling us. Markets typically don’t fare well when DJT isn’t performing.
This isn’t about calling a top or predicting doom. It’s about recognizing when something under the hood isn’t running right.
The market can ignore a lot of things for a while, but it can’t ignore the real economy forever.
Right now, weak transports, higher fuel costs and rising supply-chain expenses suggest the economy may not be as strong as the headline indexes imply.
I’m not making any big moves based on this alone, but I’m keeping position sizes reasonable and staying aware that this divergence exists.
When the trucks stop rolling, it’s worth paying attention.
Geof Smith
Geof Smith TradingÂ
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