TRANSPORTS SURGE TO TWO-MONTH HIGH -- FEDEX AND UPS ARE LEADERS IN DELIVERY SERVICES -- TRUCKING STOCK CON-WAY HITS THREE-YEAR HIGH -- S&P 500 IS CHALLENGING MID-JUNE PEAK -- THE VIX BREAKS JUNE LOW WHICH SUPPORTS HIGHER STOCK PRICES
DOW TRANSPORTS SURGES... According to Dow Theory, a necessary ingredient in a bull market is coincident gains in industrial and transportation stocks. And we appear to be getting just that. Chart 1 shows the Dow Industrials having cleared its 50-day average and nearing a test of its mid-June intra-day high at 15340. A close above that barrier would turn its short-term back up again. The Dow Transports have already done that. Chart 2 shows the Dow Transports surging more than 2% today to reach the highest level in two months. It's also a good sign for the market when the transports are strong. That's because they are an economically-sensitive group that rises and falls with the economy. The reasoning behind the Dow Theory is that industrial companies produce the goods, while transportation companies move them to market. It's a positive sign when both a rising together.
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Chart 1
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Chart 2
TRANSPORTATION ISHARES REFLECT TODAY'S SURGE... The easiest way to play a rising transportation group is with the DJ Transportation iShares (IYT). Chart 3 shows the IYT surging today to the highest level since May. The IYT/SPX ratio (solid line is also jumping. Short-term technical indicators have turned positive. The 14-day RSI line (top of chart) has climbed back over 50, and the MACD lines (below chart) have turned positive.
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Chart 3
FEDEX SURGES 6% TO SHOW NEW LEADERSHIP... One of the most economically-sensitive parts of the transportation group is "delivery services", which is leading the transports higher today. Chart 4 show FEDEX surging more than 6% in very heavy trading to reach the highest level in four months. Its relative strength ratio (below chart) has turned up as well. The monthly bars in Chart 5 put the stock in better perspective. Prior to today, FEDEX has been a transport underachiever. To begin with, the stock is still below its 2007 peak, while the Dow Transports (top of chart) has set a new record. The FDX/TRAN ratio (below chart) also shows relative weakness over the past few years. Today's strong action suggests that may be changing for the better. In the same group, UPS has done much better. The monthly bars in Chart 6 show UPS trading at a new record.
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Chart 4
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Chart 5
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Chart 6
CON-WAY ACHIEVES BULLISH BREAKOUT... Trucking stocks are also helping lead the transports higher. One of the most promising charts in the trucking group in Con-Way. The weekly bars in Chart 7 show Con-Way (CNW) having cleared its mid-2012 peak to turn its major trend higher. Its relative strength ratio (gray area) is also climbing. It gets even better. The monthly bars in Chart 8 show CNW not only trading at a three-year high, but having cleared a six-year resistance line starting back in 2006. That looks to me like a very promising chart pattern.
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Chart 7
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Chart 8
S&P 500 CHALLENGES JUNE PEAK AS VIX DROPS... The S&P 500 cleared its 50-day average last week and a two-month resistance line on Monday. Chart 9 shows it now challenging its mid-June intra-day peak at 1654. Considering that small caps have already achieved new highs, odds for an upside breakout in the SPX are good. Another vote in favor of higher stock prices is the breakdown in the CBOE Volatility (VIX) Index. Chart 10 shows the VIX dropping below its mid-June intra-day low at 15.36. A falling VIX usually corresponds with higher stock prices.
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Chart 9
