Technical Review – DOW JONES TRANSPORTATION INDEX

Dow Jones Transportation Index (TRAN) – Daily Chart (2003 – present)

Trans_tech

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After a marvelous three plus year run, the Dow Jones Transportation Index (TRAN) recently formed significant resistance in the form of a double top (black arrows & red line) at the 5,000 level. After holding support along its long term uptrend (green line) on five different occasions (noted by the blue numbers 1 thru 5) the transports bounced back towards 5,000 and appear this time to be failing just under the 5,000 level (brown circle and arrows).

The validity of a trend line depends on the more times it is tested and five times makes this trend line very valid.

With the Index rolling over here and possibly heading back for a retest of that up trend line we would watch the trading activity very carefully over the next few days/weeks. Early evidence suggests the highs for some time may be in place near the 5,000 level however, a trend line break would be needed for definitive confirmation. Ironically on a day where GDP numbers came in higher than expected, which should be perceived as good for the economy, therefore good for transportation stocks, the index moved lower not higher. When the transports fail to rally on seemingly good news we have to wonder, are the good and services now being shipped excess inventories ? Or are investors not rallying the transports because the assume inventories are building ? Either way it appears the transports by its lukewarm price action are pricing in a slowdown.

Within the sector, the rails and truckers appear to be in the worst technical shape.

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Technical Rankings for DOW JONES Transportation Index (TRAN)

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WE CAN ALWAYS COUNT ON RICHARD ARVEDLUND to take a different tack. Independent and bold calls on the economy come easy to this longtime money manager, who’s seen it all in his 30-plus-year career. But his balanced investment approach, with a focus on high-yielding, big-cap stocks combined with some bets on bonds, helps his clients preserve their capital as much as build it. The founder of Wilmington, Del.-based Cypress Capital Management, which has $450 million in assets and is now a unit of WSFS Financial, is at his best in troubled times. Trouble, the way he sees it, is straight ahead.

Barron’s: It took a year, but the calls you made when we last spoke are looking pretty good now.

Arvedlund: Well, until midyear the economy was running much stronger than I had thought it would. However, a GDP [growth domestic product] slowdown has clearly begun. The GDP growth rate dropped to 1.6% in the third quarter from 2.6% in the prior quarter and 5.6% in the first quarter. We have not seen GDP growth below 2% for four or five years. We now have preconditions in place for a recession.

Preconditions?

The preconditions would be the following: Whenever housing starts and permits drop by the rates of decline that have been exhibited — 10% to 20% — it has always preceded a recession. What is remarkably different in housing than just about any other sector of the economy is that whenever housing cycles turn down, and that’s happened twice in the last 30 years, once in the late ‘Seventies and once in the late ‘Eighties, the downturn tends to last much longer than people dream. The average cycle is three to four years.

Continue reading "Recession: The Stage Is Set"

Source:
Recession: The Stage Is Set
Interview With Richard Arvedlund, Founder, Cypress Capital Management
SANDRA WARD
Barron’s, Monday, November 13, 2006
http://online.barrons.com/article/SB116320501633920397.html

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