For the first time in almost a year, Dow Theory displayed a bullish signal for stocks this week.
This week, a stock-market barometer that financial professionals have been using for over a century flashed an optimistic signal.
When the Dow Jones Transportation Average (DJT) and Dow Jones Industrial Average (DJIA) both recorded record closing highs on Tuesday, the Dow Theory flashed a buy signal for the first time in over a year.
Even while several ambitious artificial intelligence ventures have recently faltered, technical experts see this as the most recent indication that the bull market that started in late 2022 is still on firm ground.
Tuesday was the Dow industrials average’s first all-time high since January 5. However, according to Dow Jones Market Data, the Dow transportation average had not set a new record high for a considerably longer period of time; its last record finish was on Nov. 25, 2024, before Tuesday.
“It confirms that the secular bull market is alive and well,” CMT Association co-founder Ralph Acampora stated in a MarketWatch interview.
Value stocks, cyclical names, and shares of smaller companies featured in small-cap and midcap indices have all increased in value over the last two months as a result of a rotation trade that has seen some air leave hot tech stocks like Nvidia (NVDA) and Broadcom (AVGO). Acampora noted that this tendency has greatly benefited transportation equities in particular.
The conclusion is that investors have a positive outlook on the U.S. economy, according to Craig Johnson, Piper Sandler’s chief market technician. Investors are speculating that equities that have lost out on the intense AI trade will still have a respectable year in 2026 since the Federal Reserve is anticipated to lower interest rates and analysts are projecting broad-based earnings growth.
“I think there’s no question the economy is moving in the right direction,” MarketWatch quoted Johnson as saying.
The S&P 400 midcap index MID recorded its first record closing high since Dec. 11 on Tuesday, according to data, indicating that the Dow Theory trigger wasn’t the only bullish signal to come out of the U.S. equity market this week.
Dow Theory: What is it?
Dow Theory is predicated on the idea that there is a mutually beneficial link between the Dow industrials and the Dow transports since transportation firms receive and distribute the goods produced by industrial firms. Charles Dow, who created the Dow transportation and Dow industrials averages, was the first to establish the hypothesis. (He was also a co-founder of Dow Jones & Co., the company that publishes the Wall Street Journal, MarketWatch, and other financial newspapers.)
Both averages must “confirm” a new record high in the other for a bullish signal to be issued. According to Acampora, the two record finishers should take place near to one another rather than on the same day.
Since the indicator was first developed over a century ago, both averages have seen substantial changes. Shares of technology and financial services companies are now included in the Dow Industrials, in addition to industrial names. In a similar vein, the Dow transports include the car-rental business Avis Budget Group (CAR) and the massive ride-share company Uber Technologies (UBER).
However, according to Acampora, the fundamental reasoning behind the indication is still valid. The Dow Jones Railroad Average was the name given to the transportation average when it was initially developed by Dow in the late 1800s. Although they now share space with airlines and shipping and logistics companies like FedEx (FDX) and United Parcel Service (UPS), railroad stocks are still included in the transportation average. Conclusion: Businesses that assist in moving people and commodities around the nation continue to be the main focus of the transportation average.
On Wednesday, both Dow averages were declining. In recent trading, the Dow industrials were down 391 points, or 0.8%, at 49,070. At 17,894, the Dow Transports were down 0.8%.
