RAILS AND TRUCKERS PULL TRANSPORTS SHARPLY LOWER -- FALLING EURO HURTS COMMODITIES

TRANSPORTS FALL TO NINE-MONTH LOW... Up until this week, transportation stocks had held up much better than the rest of the market. Not anymore. Today's plunge in the Dow Transports has pushed that barometer below its July low to the lowest level since January. Its relative strength line, which had been rising since January, is rolling over as well. With the tranports having broken their July low, the Dow Theory has turned negative as well. The means that the transports and industrials are now both in downtrends. That's a negative sign for the economy. Rails and truckers are the biggest transportation losers for the week.

Chart 1

RAILS AND TRUCKERS TUMBLE ... Charts 2 and 3 show where most of the transportation selling is coming from. Chart 2 shows the Dow Jones US Trucking Index tumbling 10% today to the lowest level since January. Chart 3 shows the Dow Jones US Railroad Index doing pretty much the same. Both indexes have fallen well below their 200-day moving averages. Part of the selling no doubt is coming from fears of a global economic slowdown. Part may also be coming from the continuing selloff in commodities. That's because transports get a lot of business moving those commodities. Commodities are being punished by a collapsing Euro.

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EURO COLLAPSE HURTING COMMODITIES ... Chart 4 shows the Euro falling to the lowest level in a year against the dollar. The plunge in the Euro is the result of economic problems in Europe. The ECB is discussing the possiblity of lowering Euro rates. It haven't done so yet, but it's only a matter of time. The continuing drop in most foreign currencies (except for the yen) is reflective of faltering foreign economies. That of course is pushing the dollar higher. One side effect is continued selling in commodity markets which trend in the opposite direction of the dollar and the same direction as the Euro. Chart 5 shows the DB Commodities Tracking Index (DBC) also falling to a new low today. Notice that the Euro and the DBC started falling together during July. Reduced global demand for commodities means fewer commodities being transported. That may explain some of the frantic selling in transportation stocks.

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