FEDEX LEADS TRANSPORTS LOWER -- FALLING TRANSPORTS THREATEN RALLY IN INDUSTRIALS -- RISING OIL AND FALLING TRANSPORTS ARE A BAD COMBINATION
DOW THEORISTS WON'T LIKE DROP IN TRANSPORTS ... Not too long ago I showed the Dow Transports dropping under their 200-day moving average and suggested that was a negative sign for Dow Theorists. Today's drop in the transports makes that situation even worse. Chart 1 shows the Dow Transports tumbling to the lowest level in a month. That probably has a lot to do with rising energy prices since that's what drives transportation stocks. With oil prices threatening to break $60, that makes transportation stocks especially vulnerable. Dow Theory holds that, in a bull market, industrial and transportation stocks should move up together. That's not what's happening now. If you compare Charts 1 and 2, you'll see that the June recovery high in the Dow Industrials wasn't confirmed by the Dow Transports. That creates a negative divergence to Dow Theorists and jeopardizes the uptrend in the Dow Industrials.
Chart 1
Chart 2
FEDEX HITS NEW 2005 LOW -- UPS IS CLOSE... FedEx is falling 6 points today and has dropped to the lowest level in ten months. It's also trading well below its 200-day moving average. Its falling relative strength line shows that the air freight carrier has been a transportation laggard since March. UPS isn't doing much better. Chart 4 shows that transportation stock in a downtrend since the start of the year. It broke its 200-day line during March. I believe that rising oil prices are one of the main reasons for their poor performance. Airline stocks are also declining today in the face rising oil prices.
Chart 3
Chart 4
AIRLINE STOCKS MIRROR OIL MOVES ... With oil prices on the verge of cracking $60, and energy stocks taking over market leadership once again, it's no wonder that airline stocks have been one of the market's weakest groups. Anyone who doesn't think that oil is the major culprit needs to study the next chart very closely. The price bars show the trend in the Airline Index (XAL). The black line is the price of crude. The chart shows that both lines are almost a mirror image of each other. Historically, rising oil prices have always posed major problems for the stock market in general. It makes sense then that early signs of trouble will show up first in the fuel-sensitive transports. That's especially dangerous with so many stock indexes in overbought conditions and testing resistance at their 2005 highs.
Chart 5
