Twelve years before the Dow Jones Industrial Average (DJIA) was conceived, Charles Dow relied on his Transportation Index to understand how the overall market was trending. Developed in 1884, and consisting mainly of railroad companies, the Dow Jones Transportation Index (DJTI), alerted investors to the overall strength of the economy.
Based on the concept,"if you make it, you gotta move it," the DJTI is still used by equity investors to confirm price trending of the DJIA. If the DJIA is moving up, and the DJTI is staying flat, or heading lower, the divergence of the indices indicates the DJIA movement higher is a head fake.
Another important index energy complex traders need also to closely observe is the Baltic Dry Index (BDI). Designed to track daily freight rates of dry commodity cargo ships, the BDI has great value in alerting investors to the beginning stages of economic slow downs, and the commencement of economic growth.
Energy traders who followed both the DJTI and the BDI were rewarded by knowing when world wide economic growth had peaked last year, and when the recovery began to take hold this year.
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