Previous messages showed the upside breakout in the Dow Transports (over their summer high) which confirmed a previous upside breakout in the Dow Industrials and constituted a Dow Theory buy signal (see circle). Both Dow averages are approaching another test at their spring highs. Needless to say, the ability of both Dow averages to clear their spring highs is necessary to keep the new uptrend going. I'm going to focus today on what I consider to be the most economically-sensitive part of the transports which are the rails. Chart 1 shows the DJTA iShares (IYT) testing its May high near 86. Rails have the strongest IYT weighting at 29%, air freight is second at 23%, truckers are third at 21%, and airlines at 8%. Rail dominance is further demonstrated by the fact that four out of the top ten IYT holdings are rails. Transportation stocks are considered to be economically-sensitive because they move goods throughout the country. The two groups most often used to move that traffic are rails and truckers. Chart 2 shows, however, that rails (black line) have been much stronger than truckers (blue line). One reason for stronger rails is that they're less fuel-sensitive than truckers. Another is that rails are the primary mover of commodities like coal and grains which have been very much in demand. In a sense, it could be said that rails are another way to play rising commodity markets.
