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Transport Sector Approaching Oversold at Trader’s Narrative

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

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6 Responses to “Transport Sector Approaching Oversold”  

  1. 1 Bill Luby

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

    I’m long UNP and BNI.

  2. 2 Babak

    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. 3 Brian

    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.

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