Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is the "Other" Dow Predicting a Plunge?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Lately, everyone's been celebrating the multiyear highs that the Dow Jones Industrial Average (INDEX: ^DJI  ) has recently reached. But there's another part of the Dow that many people never really pay much attention to -- and it's giving investors a much different view of the market right now.

The other Dow
The Dow industrials make up the most popular market measure for a very good reason -- they span nearly every sector of the economy. In that sense, the entire "industrials" label is a misnomer, because only a few of the Dow's components are industrial stocks in the traditional sense. With retailers, restaurants, technology stocks, and health-care companies all members of the Dow, the days when the Industrial Average had mostly stalwart stocks of heavy industry are long gone.

But with the Dow Industrials getting nearly all the attention, it's easy to forget that there are actually two other Dow averages out there. In particular, for many, the Dow Jones Transportation Average (INDEX: ^DJT  ) plays a pivotal role in confirming whether an up move for the market is likely to continue -- or whether a correction, or worse, is in the cards.

Dark clouds on the horizon
There's an old technical indicator known as Dow Theory that says that the Industrials and the Transports should confirm each other's upward movements. So with the Industrials moving to new multiyear highs lately, you'd ideally see the Transports similarly hitting record levels.

But that hasn't been the case. In fact, after peaking nearly a year ago, the Transports are still down more than 6% from their levels of last May. It would take a very strong move for the Transports to move to new highs and confirm the Dow Industrials' rally.

What's with transportation stocks?
To understand why the Transports aren't doing as well as the Industrials, it's helpful to drill down into the average itself. The Transports include 20 stocks in four broad categories: airlines, railroads, trucking and shipping, and delivery. Looking at each of those categories and their performance over the past nine months:

While Dow Theory has been around for a long time, its value may have diminished over time. Transportation is definitely a key element of the economy, but it's only one element. More importantly, the impact of energy costs is disproportionately high on the entire industry, with only a few checks and balances within the industry -- railroads tend to do better in high-cost environments, while truckers and air delivery do better when energy is cheap.

Don't panic
All told, you don't need to prepare for an imminent stock market crash just because the Dow Transports aren't likely to hit new highs anytime soon. After such a big run-up in the overall market, a correction would be a natural pause regardless -- even if you think this is just the start of a much longer-term bull market for stocks in general.

Whether or not there's a correction in the cards, great stocks will get you where you want to be in the long run. Take a look at The Motley Fool's new special report to discover three stocks to help you retire rich. It's free, but read it today while it's still available.

Fool contributor Dan Caplinger loves theory as long as it works in practice. You can follow him on Twitter. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of FedEx and UPS. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy won't forget you.

Read/Post Comments (0) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1799917, ~/Articles/ArticleHandler.aspx, 10/23/2016 2:47:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:47 PM
^DJI $18145.71 Down -16.64 -0.09%
CSX $30.29 Down -0.05 -0.16%
CSX CAPS Rating: *****
OSG $9.80 Down -0.09 -0.91%
Overseas Shipholdi… CAPS Rating: *
UPS $107.16 Down -0.24 -0.22%
United Parcel Serv… CAPS Rating: ****