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Rolling with the Transports: Rails and…Truckers?!?

Financials.  Oil.  Financials.  Oil.  Financials.  Dollar.  Oil.  Anyone look at the transports (IYT) lately?  Rails and truckers specifically? It’s as if fund managers have classified all stocks as financial trades or oil/dollar trades, and the media piles on and that’s all we ever hear about.  Doesn’t the individual industries and business fundamentals matter?  It doesn’t seem like it matters for a lot of sectors, but anyone look at the transports lately?  Rails and truckers specifically?  (Just these two because we have lost the airlines and autos to “the dark side” and its futile to try to mount a rescue mission anytime soon)

Union Pacific chart from StockCharts.com But rails!  One of the strongest, if not the strongest, old industrials sector charging ahead all year.  First riding the ag and coal momentum on the back of rising energy prices (which was sometimes weird because higher oil prices hurt the rails’ fuel input costs too).  Then, even as the ags and coal got kneecapped when energy rolled over in July, the rails kept going, probably on the idea that lower energy would boost the economy, or lower energy would lower the rails’ fuel costs.  It’s hard to make a correlation with any of these factors, and rarely do they work to trade off of in the stock price anyway.  Either way, the rails have been one of the few sectors constantly fighting back this bear market.  And look at the likes of Union Pacific (UNP)!  Tagging all time highs after a minor pullback that people thought meant the rails have finally given up the ghost and was about to roll over.

YRCW Stockcharts ChartMore impressive is what appears to be a bottom in the truckers and the likes of YRC Worldwide (YRCW).  Looks like an inverse head and shoulders bottom, or the Kilroy bottom as the editor of Technical Analysis of Stock Trends by Edwards and Magee likes to call it.  Left shoulder: tried a bottom on January 4th, 2008.  Stock dived again, with the actual “head” bottom the week of March 18th.  Since then, it’s been making the right shoulder, i.e. higher lows.  And, finally in July, higher highs as oil broke down in these months, breaking through that $18-$20 resistance, where you see the high volume (committed capital at this price) to the left of the chart.  Interesting to note, though, that while YRCW seemed to have bottomed in March, it’s been able to make higher highs and higher lows in the face of that big runup of oil to that record $149 in this period!  A possible explanation might be retailers stocking inventory during this time to meet the demand from the rebate checks.  I’m not too sure that’s a good explanation as retailers have been going lean with their inventories all year.  If truckers’ stocks can rally in the face of rising oil, i.e. rise in the face of bad news, the bottom’s likely in?  If YRCW can pierce this $20 level to the upside with conviction, I’d hop on this puppy, along with UNP mentioned above as UNP breaks to a new range above its all time high.

Yesterday’s strong GDP showed that away from the financials’ damage epicenter, the U.S. economy is still chugging along great.  Which is probably what the Rails and Truckers have been telling us since March.  However, the Rails have been driven mostly from exports, whether it be large industrial machinery or coal and fertilizers.  That’s my area of concern as the global economy has obviously slowed, and the impact of Europe in a worse economic condition that the U.S. might bring.  The other leg of this transport trio I’d like to see support from is the shippers.  They’ve been weak most of the summer, and the analysis from the Imarex Report on Capital Link Shipping continues to show weakness in the shippers.  I’m having trouble seeing how the rails’ support from exports can continue if the shippers aren’t shipping the exports to the likes of China.  As I’ve said before, I think China just took a breather as it clamped down hard on its industrial activity for the olympics.  But it’s yet to be seen where the world supply/demand of goods and commodities evens out when China’s fully back online.  Did 2 weeks of Olympics slow China too much to recover, or will things come back as strong as ever?

I think the transports have been muddling up the Dow Theory of needing trend confirmation between the Dow Jones Industrial Average (DIA) and the Dow Jones Transportation Index (IYT).  I believe that’s because the autos and airlines so much problems internally within their industry: union problems, factories fitted for too many SUV’s, airline mergers and bankrupcies.  However, with the autos and airlines near all time lows and basically flailing around as trading vehicles to play oil, I’d think you can sort of ex-out the effect of the autos and airlines.  So, moving forward, with the rails and truckers leading the transports…if the IYT can get above $98 and Dow Jones Industrial Average above 11,800 we might be looking at a confirmation rally?  Don’t want to anticipate anything in this market, but just thinking of things to look out for…

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** Disclosure: No positions in the stocks mentioned. **

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