Dow Theory Guru: The Trend In The Transport Stocks Is Clearly Bullish

Yesterday, stocks surged with the the Dow Jones transportation stocks — aka the "trannies" — leading the way with a 2.9 percent gain. . saw their largest one-day increase since last summer,

But with stocks within points of all-time highs, lots of people are wondering if a sell-off is imminent.

Rich Moroney, the editor of Dow Theory Forecasts, says the fear is not warranted.

The Dow Industrials reached fresh five-year highs on Feb. 27, while the Dow Transports reached all-time highs on Feb. 19, so the primary trend is clearly in the bullish camp under the Dow Theory. While a move to all-time highs in the Dow Industrials and S&P 500 Index could help extend the market’s run in the near term, all-time highs are not necessary to keep the Dow Theory in the bullish camp.

In a nutshell, the Dow Theory says that if Dow transportation stocks and Dow industrial stocks confirm each other's movements highs (or lows), a buy signal (or sell signal) has been indicated.

Moroney also says that stocks are not overvalued based on fundamentals. The median S&P 500 stock is at 15-times expected year-ahead earnings — a 4 percent discount to the norm since 2004.

Moroney says he is not 100-percent all in, but does not believe we're in danger of overheating: "While a secondary correction would not be surprising, the weight of the evidence suggests it is too soon to raise cash aggressively. Our buy lists have 91.9% to 97.5% in stocks."