Transport stocks send bullish signal; UPS wonders why

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Chart-watching investors who’ve been looking for a reason to jump into the streaking stock market may have found it in today’s big move up in major transportation shares.

The 20-stock Dow Jones transports index surged above its spring closing high of 3,404.11 reached on May 6. The index closed up 111.29 points, or 3.3%, to 3,506.12.

One of the tenets of ‘Dow Theory’ investing is that, to be considered more than a flash in the pan, any rally in the Dow Jones industrial average should be ‘confirmed’ by an advance in the railroads, airlines and truckers that make up the Dow transports.

The Dow transports index had stalled out after May 6, even as the Dow industrial index rallied further to reach its spring closing high of 8,799.26 on June 12.

Amid the market’s powerful advance since July 10, the Dow industrials surpassed their June 12 high on Monday and today topped 9,000, closing up 188.03 points, or 2.1%, to 9,069.29.

Now, the transports index’s jump to its highest level since January is providing more fodder for the Dow Theory bulls.

The focus on transportation stocks is very old-school: Their rally is supposed to indicate that investors believe that shipping of goods is picking up, which would be another sign of a recovering economy.

UPS Inc., however, didn’t provide much help for the recovery case today. The shipping giant reported a 49% plunge in second-quarter earnings and warned analysts that their third-quarter estimates were too high.

‘We don’t have any confidence that either demand or activity is going to pick up substantially’ soon, UPS Chief Financial Officer Kurt Kuehn said on a conference call with analysts.

Nonetheless, UPS shares rose $1.21 to $53.51 today after diving to $50.80 at the opening bell.

It just goes to show: You can’t tell the market what it doesn’t want to hear.

-- Tom Petruno