DOW TRANSPORTS SURGE TO RECORD HIGH TODAY -- TRUCKING LEADER CON-WAY HITS NEW THREE-YEAR HIGH -- TRANPORTATION ISHARES ARE A GOOD WAY TO PLAY TRANSPORTATION RALLY -- BOND YIELD JUMPS ON STRONG ECONOMIC NEWS -- STOCKS HIT NEW RECORDS
DOW TRANSPORTS CONFIRM NEW RECORD IN THE INDUSTRIALS... The Dow Industrials and Transports are hitting new record highs together once again. That's a sign of an ongoing bull market. [Dow Theory holds that an upside breakout in either one needs to be confirmed by a similar breakout in the other]. Chart 1 shows the Dow Industrials trading at a new record today. Today's action in the transports is even more impressive. Chart 2 shows the Dow Transports climbing 3% to also trade at a new record. The upside action in the transports is also encouraging, since they're considered to be an economically-sensitive stock group. That's especially true of air freight, rails, and trucks. Today's upside leadership is coming mostly from truckers.
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Chart 1
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Chart 2
TRUCKING LEADER CON-WAY HITS THREE-YEAR HIGH... This is the same headline I used in a July 9 message about the transportation group. Today's 8% gain makes Con-Way the day's leader in a strong transportation group. Chart 3 shows Con-Way (CNW) jumping convincingly over its mid-2011 peak to reach another three-year high. The CNW/SPX ratio (gray area) is also climbing sharply. Chart 4 (which is an updated version of the chart shown on July 9) shows that Con-Way has also broken a major resistance line extending back to 2008. That's a very strong sign for the trucking leader. The CNW/SPX ratio has also turned up this year for the first time in several years. Three other top transport percantage gainers today are JB Hunt (JBHT), Kirby (KEX), and Ryder (R).
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Chart 3
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Chart 4
TRANSPORTATION ISHARES HIT NEW RECORD... One of the simplest way to play a rising transportation group is via the DJ Transportation Average iShares (IYT). Chart 5 shows the IYT breaking out out to a new record. The solid line is a ratio of the IYT divided by the S&P 500. That relative strength ratio has just exceeded its July peak to turn its trend higher as well -- after underperforming the rest of the market since March. That's another positive sign for the transportation group. [The IYT has a 30% weight in rails, 19% in delivery services, 17% in truckers, and 15% in arlines. It also has a 9% weight in marine transportation which includes Kirby (KEX)]. Chart 6 shows that marine transportation leader hitting a new record high today.
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Chart 5
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Chart 6
MARKET IS FINALLY RECOGNIZING GOOD NEWS AS GOOD NEWS... Chart 7 shows the 10-Year T-Note Yield starting to climb during May and eventually rising to the highest level in more than a year. After pausing over the last couple of weeks, bond yields are up again today. This may seem surprising after yesterday's "dovish" comments from the Fed with no mention of "tapering" its bond buys. The market knows, however, that rising rates are just a matter of time -- whatever the Fed decides to do. The market anticipates future events. And most market analysts believe that bond yields have to start rising sooner or later. Interestingly, stocks are reacting positively to today's jump in bond yields. That suggests that the market is finally beginning to recognize good news as "good news". In the past, strong economic news increased the odds for less bond buying on the part of the Fed, which was viewed as "bad news". Today we found out that U.S. manufacturing expanded the most in two years, and jobless claims fell to the lowest level in five years, When economic news starts getting stronger, bond yields usually rise. And that may explain why they're rising today. That may also explain why stocks are rising along with bond yields. Chart 8 shows the S&P 500 trading at a new record today. During June, a rise in bond yield pushed stocks lower. Today, stocks are hitting new highs in the face of a higher bond yield. Increased economic optimism also explains why the market is being led by economically-sensitive stock groups like industrials (and transports), consumer discretionary stocks (like autos), and financials (like banks). Those groups usually become market leaders when economic news gets better and bond yields start climbing as a result.
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Chart 7
