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)

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.

More 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…

Related SuckingLess.com Research Tools:

• Rail Cost Indexes by the American Association of Railroads: Railroad Cost Recovery Index, Rail Cost Adjustment Factor, Railroad Fuel Prices
• Travel Industry Association: One Stop Shop Travel & Leisure Research (hotels, resorts, airlines, parks, autos, restaurants, consumer behavior)
• Official China Trade Statistics by Ministry of Commerce of the People’s Republic of China
• Capital Link Shipping: Daily Rates, Industry Reports, and Everything Shipping
• globalCOAL: Coal Prices, News & Analysis, Trading System

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

Sure why wouldn’t Australia approve of Chinalco’s stake in Rio Tinto. Australia’s wealth has grown like a weed thanks to it’s biggest customer, China, and China’s buying of Australia’s commodities. So why not play buddy buddy with you’re biggest customer? Sure, other “developing countries” are growing too…and while this might sound awkward referring to a commie country like China…China’s actually good for it’s money. You don’t just want a customer that pays, but pays steadily and that you know they’re good for it. Some of the politically unstable countries? I dunno. Countries (well country- U.S.A.) with debt growing like a tumor? Not too sure either. But China, a country that’s growing fast and steadily, and strategizing around the world, such as with African nations, to secure it’s future growth, and with national reserves growing up the wazoo- just on interest alone. Yeah, I’d play buddy buddy with China too. It’s like in the old days how a king would send over his sister or daughter to marry another country’s royalty. In this case, I guess the princess’ name is Rio Tinto. But then eventually (well after a year or so) the two kingdom’s would be at war again and the sacrificial princess be killed. Let’s see how this modern remake plays out!

Australia approves Chinalco stake in Rio Tinto

SYDNEY (Reuters) - Australia has approved Chinese aluminum giant Chinalco’s recent purchase of a minority stake in Anglo-Australian miner Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz) (RIO.L: Quote, Profile, Research, Stock Buzz), but warned the Chinese firm against buying more shares without prior approval.

State-owned Aluminum Corp of China (Chinalco), backed by U.S. peer Alcoa Inc (AA.N: Quote, Profile, Research, Stock Buzz), began amassing shares this year with the aim of taking up to 14.9 percent of Rio, the target of a $127 billion takeover bid from rival BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz)

Full Article: Australia approves Chinalco stake in Rio Tinto

Related SuckingLess.com Research Tools:

• Base Metals LME Charts and Prices: News, Reports and Research for Copper, Aluminium, COMEX, Nickel, Tin, Lead, Zinc, Iron, Steel
• Platts: Professional Energy and Metals Information (Prices, Data, Maps, Events, Magazines, Reports)
• globalCOAL: Coal Prices, News & Analysis, Trading System

As they say, when something goes up on bearish news, it’s probably time to buy. When they weren’t able to push oil lower today on that ridiculously huge build in crude inventories of 9M barrels, and oil actually ended higher, we might’ve found a short term bottom for oil and have begun the bounceback rally. Since oil’s the commodities General, all the commodities from energy to agriculture to metals bounced with vigor today. The commodities (and the companies fund managers treat like commodities- including my beloved McDermott, now in a wheelchair after having is legs cut out from under it) have dropped basically in a straight line since end of June/early July that a bounce was inevitable. Moreover, the commodities and the collateral damage of related names have fallen so far so fast, all so far below their 50 day moving average, 200 day moving average, you name it, that this countertrend rally would likely have some umph and last for a while. (Nucor closed at $52.5 and it’s 50 day moving average is nearly 20% higher around $63!) I’m ready to add to these sectors to ride the relief rally, but keeping in mind the magnificent commodities uptrend of the first half of the year has been broken. Unless there’s reason to believe otherwise, I shall treat this rally as what it is, a countertrend rally in a downtrending market, and sell into this rally.

However, I think there’s a good chance the commodities and their friends can re-take the uptrend. My calendar has just alerted me that Joe Terranova of CNBC’s Fast Money had called for natural gas to bottom this very week and to resume the uptrend began earlier this year. I mentioned this call Joe made in a previous post, where Joe alerted viewers to the natural gas rule of thumb “June highs July lows” at the end of June, telling people to take profits in natural gas right when natural gas looks like it could go up forever, but subsequently took a death dive from above $13 to below $8 in just a month or less. With the brunt of the hurricane season still to come in September and early October, and heating oil demand to drive oil demand in the winter, the coming months are usually bullish for energy. Now we just have to see how the price reacts to this bullish environment. If energy can’t re-take the uptrend in a bullish environment, it’s probably time to get out our parachutes and bail.

Anyway, yesterday was an interesting stabilization and reversal day. Even more impressive given the dollar didn’t fall (i.e move inversely to crude), thus possibly breaking the correlation between the dollar and oil. Looking forward to seeing how this develops!

Referenced SuckingLess.com Research Tools:

• The Oilfield Glossary by Schlumberger (SLB)
• FERC Natural Gas Markets: U.S. Government Data, Analysis, and Reports
• globalCOAL: Coal Prices, News & Analysis, Trading System
• Platts: Professional Energy and Metals Information (Prices, Data, Maps, Events, Magazines, Reports)
• Power Engineering Magazine: Power Generation Industry Magazine

** Disclosure: I own shares of MDR as of this post **

Even as RealtyTrac reported a 121% increase in foreclosures year-over-year to 739,714 properties, not all in the residential real estate market is bad. AvalonBay Communities Inc. (AVB) and Sam Zell’s Equity Residential (EQR) both reported strong quarterly results with AvalonBay raising full year guidance. This reminds us that there’s always a bull market somewhere, even in implosions like the U.S. housing market. This time it’s in the apartment owner space in certain locations.

Referenced Article: Reuters-Location key as apartment owners post strong results

Recommended SuckingLess.com Research Tools:

• RealtyTrac: Latest Foreclosure Trends, News, Property Listings
• The Mortgage Lender Implode-O-Meter: Tracking the Housing Finance Breakdown