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According to Dow Theory, both the DJIA and the Dow Jones Transportation Index (DJT) should be rising together, and indeed they are. A jump in the Dow Transportation Index (see chart at the end of this article) is indeed moving ahead.

At the top of this page, though, is the chart for an ETF I own, based on the S&P Transportation index. As you can see in the chart, it is a cup-and-handle formation that seems to be on the verge of a breakout. You will note that on the PPO line I have circled a buy signal, which just began today – based on a big move upward in the index. At this writing, it seems to be breaking above the high it set last November, during the reliable Halloween Effect, which at the end of next month will arrive to scare away the ghost and goblins that so often appear at this time of the year.

My first reaction to the upward movement in the XTN was that the trade included pipeline shares, and therefore benefited from the six per cent move in Enbridge stock, following that company’s announcement of a $37-billion merger with Houston-based Spectra Energy Corp. This is the latest (and largest) move in a string of infrastructure moves. In recent months TransCanada, Fortis and Emera have each dropped more than US$10-billion to acquire infrastructure south of the border.

The puzzle is this: my Transportation ETF, XTN, is doing better than the Transportation Index itself. Yet XTN doesn’t have any pipeline holdings.

Could the answer to this riddle be speculation that the “bigger is better” thinking in the pipeline business will soon take hold in other transportation sectors – airlines, buses, trucking and so on? To me, that’s the only thing that makes sense.

Of course, that is only speculation. I will continue to own XTN, but I certainly wouldn’t recommend that you buy or sell it. That’s not what I do.

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