There is one thing more bullish than the Dow Jones Industrial Average hitting a record: the Dow Jones Transportation Average hitting a record at the same time.
That’s according to Dow’s theory of market analysis, which has remained relevant to Wall Street investors for over a century.
And while it may seem like something is wrong with the market pricing platform being used, as it shows the Dow is carrying DJT,
up by more than 1,000 points to a record level, this gain is real, mainly thanks to the CAR of Avis Budget Group Inc.,
Dow transports rose 1,083 points, or 6.8%, on Tuesday afternoon trading to break the previous closing high of 15,943.30. In addition, the Dow Jones gained 149 points, or 0.4%. This put both indices on track to setting record close on the same day, for the first time since May 7. See Market Snapshot.
The reason the Dow Transport is rising sharply, with less than half (8) of its 20 constituents gaining traction, is because it is a price-weighted index, just like the Dow manufacturers, and because the stock of the Avis Budget component is experiencing a rather unusual trend. rally.
Avis stock jumped $ 186.43, or 108.7%, as the car rental company reported spectacular third-quarter results after a sharp rise in bearish bets as the stock climbed in arrow before results. The stock price gain would actually add about 1,137 points to the price of Dow transport.
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In fact, Dow transports actually rose 2,303 points, or 14.4%, to its intraday high of 18,246.51, while Avis stock was up $ 373.65, or 217. 9%, at its intraday high of $ 545.11.
Now back to the Dow theory.
One of the six fundamentals of Dow Theory, which has been described by many as the oldest market synchronization system that is still widely used, is that no significant bullish or bearish market signal could be triggered at less than industrial Dow and Dow transport flashed the same signal. Even if the signals did not have to flash simultaneously, the less time elapsed between signals, the stronger the signal.
The theory was based on the assumption that industrial and transportation companies had symbiotic relationships, as transportation takes and delivers what industrialists make. Although Dow industrials no longer include manufacturers only and Dow transports include others than takers, they still represent larger sectors that should be in sync if the economy and the stock market were in sync.
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Manuel Blay, co-editor of “TheDowTheory.com,” said that according to the classic definition of Dow Theory, a buy signal was first triggered in May 2020. But Dow transports reaching a new level. Highs on Tuesday are always a “bullish indication”, and that means “the bull market is reaffirmed”.
For those wondering how precise Dow theory could be, after more than 100 years of practice, Blay said the indicator’s average annual gain would have been 11.22% since 1953, compared to a gain of 10.8% with a buy and hold strategy. .
Dow transports continue to take
The rise of the Dow industrials above 36,000 has certainly been impressive. It rose 5.8% in October, the largest monthly increase since March. He is heading for a third consecutive record and a sixth record in the past eight sessions. Learn more about the Dow Jones 36,000 threshold.
But Dow Transports have been on fire, even before Tuesday’s record rally. It jumped 13.6% in October, the best one-month performance in October 2011. And with Tuesday’s rally, the index was heading for its 12th gain in 14 sessions.
Dow transports are up 31.1% so far this year, with 19 of 20 components showing a gain year-to-date, while Dow industrials are up 17.8% with 24 of 30 components. up this year.