Bloomberg News

Dow Transport Losses Awaken Concern on Rally: Chart of the Day

February 22, 2012

Feb. 22 (Bloomberg) -- A two-week retreat in the Dow Jones Transportation Average may signal a warning for the rally that has added $1.35 trillion to American equity values this year, according to analysts who use charts to predict markets.

The CHART OF THE DAY shows the gauge has fallen 3.8 percent since Feb. 3, a period in which the Dow Jones Industrial Average climbed 0.8 percent and reached the highest level since May 2008. The transportation average is viewed by some analysts as a leading indicator because truckers, airlines and couriers may be the first to experience the effects of an economic slowdown.

“This market does seem to be overdue for a pullback,” Chuck Carlson, chief executive officer at Horizon Investment Services LLC in Hammond, Indiana, said in a phone interview. Horizon oversees $150 million and uses the relationship between the industrial and transportation gauges to determine how much cash to hold. A divergence “doesn’t always necessarily signal a change in the major trend, but it can foreshadow a bit of a correction,” he said.

United Continental Holdings Inc. led air carriers lower since Feb. 3, falling 15 percent to $21.24 as fuel prices jumped to the highest since May. Overseas Shipholding Group Inc., the largest U.S. crude-tanker owner, fell 24 percent to $9.82 in the same period after saying it will stop loading cargoes in Iran amid tightening sanctions on the Persian Gulf nation.

The Dow industrials have gained 6.1 percent this year, extending its rally from an October low to 22 percent, as European leaders stepped up efforts to contain the region’s debt crisis and the Federal Reserve pledged to keep interest rates near zero through 2014. The Standard & Poor’s 500 Index, the broader benchmark for U.S. equities, is up 8.3 percent this year, including a 4.4 percent increase last month, the best January rally since 1997.

--Editors: Stephen Kleege, Chris Nagi

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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