It’s not a typo, the Dow transports really is up more than 1,000

On Nov 2, 2021

There’s one thing more bullish than the Dow Jones Industrial Average rising to a record close — the Dow Jones Transportation Average reaching a record at the same time.

That’s according to the Dow Theory of market analysis, which has remained relevant to Wall Street investors for more than a century.

And while it might look like there is something wrong with the market pricing platform being used, because it’s showing the Dow transports
DJT,
+6.88%
up more than 1,000 points at a record high, that gain is real, mostly because of Avis Budget Group Inc.’s
CAR,
+108.31%
skyrocketing stock.

The Dow transports was up 1,083 points, or 6.8%, in afternoon trading Tuesday to blow past the previous record close of 15,943.30. In addition, the Dow industrials rallied 149 points, or 0.4%. That put the two indexes on track to set record closes on the same day, for the first time since May 7. See Market Snapshot.

The reason the Dow transports is up so much, with less than half (8) of its 20 components gaining ground, is because it’s a price-weighted index, just like the Dow industrials, and because component Avis Budget’s stock is seeing a rather unusual rally.

Avis stock shot up $186.43, or 108.7%, as the car rental company reported blowout third-quarter results, following a sharp increase in bearish bets as the stock spiked higher ahead of the results. The stock’s price gain would actually add roughly 1,137 points to the Dow transports’ price.

Don’t miss: Avis Budget’s ‘unnatural’ stock surge has options traders prepped for a volatile earnings reaction.

In fact, the Dow transports was actually up as much as 2,303 points, or 14.4%, at its intraday high of 18,246.51, while Avis’ stock was up $373.65, or 217.9%, at its intraday high of $545.11.

Now back to the Dow Theory.

One of the six basic tenets of the Dow Theory, which has been described by many as the oldest stock-market timing system that is still widely used, is that no important bull or bear market signal could be triggered unless both the Dow industrials and Dow transports flashed the same signal. Although the signals didn’t have to flash simultaneously, the less time that occurred between the signals, the stronger the signal.

The theory was based on the assumption that industrial and transport companies enjoyed symbiotic relationships, as transports take, and deliver, what industrials make. Although the Dow industrials no longer just includes makers, and the Dow transports includes others than takers, they still represent broader sectors that should be in sync if the economy and the stock market were in sync.

Don’t miss: Don’t dis the Dow Theory just because it’s over 100 years old.

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