Transportation Index Continues To Grind Higher

If the face of last week’s sideways price action and almost in a rebellious manner today (May 4, 2021), the Transportation Index is moving higher while the US major indexes are all broadly lower. VIX has shot up over 20 again (over +13% higher) and the Nasdaq is off by more than 300 points (-2.75%) as I write this article. Yet, the Transportation Index is bucking the trends and trading higher.

WHAT DOES IT MEAN WHEN THE TRANSPORTATION INDEX BUCKS THE MAJOR INDEX TRENDS?

We have often highlighted the Transportation Index in our past research article. The reason we watch this index so closely is that it tends to lead market trends by at least 30 to 60 days. In short, the Transportation Index is a measure of future expectations related to freight, shipping, transportation, and the movement of goods and commodities across the US and across the globe. 

When an economy contracts, the Transportation Index will likely follow major indexes lower as future expectations related to economic activity contract. When a recession or deep price correction happens, the Transportation Index usually moves sharply lower as the sudden shock of an unexpected economic contagion vastly alters future economic expectations. But generally, the Transportation Index tends to front-run economic expectations.

The fact that the US major indexes are all broadly lower while the Transportation Index is moderately higher (and really running counter to the bearish trending) today suggests this price decline is a technical pullback in price – not a broad market contagion event.As we interpret this early stage price rotation, we have to call it as we see it right now – Crude Oil is higher, the Transportation Index is higher, and the US Dollar rebounded higher yesterday. Until we see confirmation within all three of these components related to a change in price trend, we believe the current move is a technical pullback of the bullish price trend, meaning the markets just got ahead of themselves recently and this is a common pullback.

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