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This week's Wiki-Wednesday topic is the Dow Jones Transportation Index. An excerpt of the article is below, but you can click here to connect directly to the page on Wikipedia.  I've also called out a couple of the links for further reading - this index is another good economic trend to watch, and should also be watched for procurement professionals managing categories of goods with substantial transportation costs.

The Dow Jones Transportation Average (DJTA, also called the "Dow Jones Transports") is a U.S. stock market index of the transportation sector, and is the most widely recognized gauge of the American transportation sector. It is the oldest stock index still in use, even older than its better-known relative, the Dow Jones Industrial Average (DJIA).[1]

The index is a running average of the stock prices of twenty transportation corporations, with each stock's price weighted to adjust forstock splits and other factors.[1] As a result, it can change at any time the markets are open. The figure mentioned in news reports is usually the figure derived from the prices at the close of the market for the day.

Changes in the index's composition are rare, and generally occur only after corporate acquisitions or other dramatic shifts in a component's core business. Should such an event require that one component be replaced, the entire index is reviewed.[2]The average was created on July 3, 1884 by Charles Dow, co-founder of Dow Jones & Company, as part of the "Customer's Afternoon Letter". At its inception, it consisted of eleven transportation-related companies: nine railroads and two non-rail companies.

Additional Reading:

Dow Jones Transportation Average Overview

EXCERPT... Transportation is the link between manufacturers of goods and the people that buy them. Even online shoppers in cyberspace depend on the trusty UPS or Federal Express trucks for their deliveries. Back in Charles Dow's day, railroads were the behemoth corporations of America. There are far fewer of them now, because of mergers brought about in large part by increased competition from trucks and airplanes.

An elaborate analytical system dubbed Dow Theory (so named by people who followed Mr. Dow, but not by Mr. Dow himself) holds that the Dow Jones Transportation Average must "confirm" the movement of the Industrial Average for a market trend to have staying power. If the industrials reach a new high, the "transports" would need to reach a new high to "confirm" the broad trend. The trend reverses when both averages experience sharp downturns at around the same time. If they diverge – for example, if the industrial average keeps climbing while the transports decline – watch out!

The underlying fundamentals of the theory hold that the industrials make and the transports take. If the transports aren't taking what the industrials are making, it portends economic weakness and market problems, Dow Theorists maintain.

Transport stocks: The little engine that can't

By Paul R. La Monica July 6, 2011 (CNN Money) 

The Dow Jones Transportation Average (DJT), a collection of 20 truckers, shippers, railroads and airlines, hit an all-time high last week during the broad market rally and was trading near a new one Wednesday. That's right. An all-time high. Not a mere 52-week high.

Is that cause for celebration? After all, transportation stocks are often considered a strong leading indicator of economic growth.

If the rails, skies, seas and highways are crowded with trains, planes, boats and trucks shipping all sorts of stuff, that must mean companies are producing goods that they think consumers actually want to buy.

However, a closer look at the components of the index show that the strength isn't necessarily tied to optimism about the economy. It may have more to do with the commodities boom.

Dow Transports Lagging the Dow Industrials - A Fundamental Sign the Economy is Struggling

EXCERPT... Back in 1999, when the Nasdaq was going parabolic in what would be its last hurrah, the market was sending clear signals that all was not well. But you had to look beneath the surface to find them. There were technical divergences building up (declining market breadth, etc.), and also some key indexes like the Dow Transports that failed to participate in the continuing rally.

According to the Dow Theory, when the Dow Transports begin to lag the Dow Industrials, it is a significant event. This divergence signals that not all of the market agrees that the future is full of blue skies and sunshine.

The Point

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