Transport Sector Approaching Oversold

Published August 9th, 2007 in Technical Analysis Tags: bullish percent, bullish percent index, Dow Theory, financial sector, oversold, timing the market, transports.

Other than the financial sector, which is extremely oversold, the only other major sector in the market approaching such levels right now is the transports.

After participating in the Dow Theory buy signal in late April, the transports powered to an all time high last month (5487). But even as this sector was climbing into thin air territory, its bullish percent index was falling.

This sort of divergence is usually a bad omen as it means that less and less stocks in the sector are participating and fewer and fewer are responsible for pushing the index higher.

Anyway, historically, when the bullish percent index for this sector reaches 30% it is a good time to hunt for longs and eschew the short side.

You can see details of how this signal worked out last summer.

transport bullish percent index august 2007

bullish percent, bullish percent index, Dow Theory, financial sector, oversold, timing the market, transports

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6 Responses to “Transport Sector Approaching Oversold”

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1 Bill Luby Aug 9th, 2007 at 2:33 pm

This is particularly interesting, given Buffet’s interest in the railroads.

I’m long UNP and BNI.
2 Babak Aug 9th, 2007 at 4:10 pm

Bill, interesting. Where did you read about this? He’s usually early (and sometimes wrong).

btw, I think we can settle the ISE sentiment question now
3 Brian Aug 9th, 2007 at 9:52 pm

Buffett has been long railroads since the beginning of the year. I think his reasoning was that oil prices were getting so high that businesses are likely to cut back on planes and trucks to move goods and use trains instead.