I was just looking at the Dow and the Transport sector index. This is a part of Dow theory which states that the transport index is a good indicator of the economic state of the country and therefore should correlate with overall movements of the index (if people/businesses aren’t wanting goods, then how are transport companies going to be increasing in value if they have nothing to transport?).

But look at this chart. Transport Index ($IYT) Red. Dow Jones Industrial Average ($DJIA) Blue.

Back in 2007/2008, we had divergence between the index and the sector. How can an index keep increasing in value when the underlying indicator is showing negative sentiment. What is alarming here is that we have had the same thing occur, albeit more sharply and with a deeper initial drop. Then we had the actual crash in 2008. With what I have been saying in previous posts about my global bearishness, is this just me trying to confirm my bias or is there a real issue here?