Ask Colin

Is the Dow Theory idea of confirmation by the Transport index still valid?

There is now no Australian Transport index, so we cannot continue using that technique here. There is still a Dow Jones Transport Average on Wall Street though.

The problems with the old Australian Transport index are now academic, so there is no point going over them.

There are similar concerns about Dow Jones Transport Average. Essentially, the old Railways Average seemed to work because of the very direct impact on Railway revenue and profits that flowed from changes in the level of industrial sales. This was in the time when almost all goods in the US were moved by rail. Now transport media are very mixed including rail, road, courier, air and Internet. Also services are a large part of the economy. The direct link between industrial sales and transport earnings is greatly muddied in the modern economy.

I would not throw the whole idea out the window and forget it, but I think we need to think through what the charts are telling us more than we used to.