Dow Jones Transportation Stocks Suggesting Bullish Fourth Quarter?

Where Are Stocks HeadedIn terms of stock market direction, the Dow Jones Transportation Average recently pushed through to another new record-high. The index retrenched along with the broader market in early October, but it fought back hard to just over 8,800.

Within the index, countless stocks have been doing well. Alaska Air Group, Inc. (ALK) slumped to $42.00 in the lead-up to its earnings report. Now, it’s almost $55.00 a share after reporting another strong quarter.

Railroad stock CSX Corporation (CSX) dropped just below $30.00 in the market’s recent sell-off. After reporting very solid quarterly earnings, the position is right close to $36.00 a share, up from $8.50 in early 2009.

I still view transportation stocks as one of the best indicators, both for the U.S. economy and for the rest of the stock market.

Price strength in the Dow Jones Transportation Average is a key indicator, and when it leads the Dow Jones Industrial Average, it’s typically a very bullish signal.

This has been the case over the last two years. When stocks broke out of their slump at the beginning of 2013, transportation stocks excelled and began outperforming the Industrial index quite substantially.

This leadership outperformance has actually gotten greater and has been particularly noteworthy this year.

When the Dow Jones Transportation Average is outperforming the Dow Jones Industrial Average and the S&P 500, it’s a very positive sign, even for a market that’s at its all-time record-high and looks tired.

Follow transportation stocks, and you can save yourself a lot of time and eliminate a great deal of noise related to the stock market. (See “3Q14 Earnings Results Suggest Strength into 2015?”) The Dow Jones Transportation Average continues to be a key leading indicator for the U.S. economy and stocks in general.

Right now, the Dow Jones Transportation Average is saying full steam ahead. With solid corporate balance sheets, a very accommodative central bank in no hurry to raise interest rates, and good corporate outlooks going into 2015, there’s no reason why stocks can’t have another good year.

Like always, though, individual stock selection becomes more difficult with an equity market at its highs. Valuation is of real concern, even among dividend-paying blue chips, so investors don’t need to be in any rush to consider new positions.

I still like large-cap existing winners for equity investors wanting to take on new positions with stocks in record territory.

Companies like Johnson & Johnson (JNJ), 3M Company (MMM), NIKE, Inc. (NKE), The Walt Disney Company (DIS), Microsoft Corporation (MSFT), and Union Pacific Corporation (UNP) are great examples of proven winners that are worth considering on price retrenchments.

It really is worthwhile to follow transportation stocks in order to help with your own market outlook.

In fact, it’s highly unlikely that the broader market would come apart without the Dow Jones Transportation Average showing material weakness first.

When stocks recently sold off, United Parcel Service, Inc. (UPS), a key component of the Dow Jones Transportation Average, dropped to just under $95.00 a share. Then, the company beat the Street with its third-quarter earnings and a double-digit comparable growth outlook for the upcoming holiday season.

Now over $105.00 per share, this member of the Dow Jones Transportation Average may be a bullish indicator.