AIRLINE SELLING HAS WEIGHED ON TRANSPORTS -- BUT THAT MAY BE IMPROVING -- DELTA AND UAL BOUNCE OFF FEBRUARY LOWS -- SOUTHWEST AIR SHOWS RELATIVE STRENGTH -- OIL SERVICE ETF BOUNCES OFF MOVING AVERAGES
TRANSPORTS SHOW SHORT-TERM WEAKNESS... One of the market's short-term problems has been the recent downturn in transportation stocks. The daily bars in Chart 1 show the Dow Jones Transportation Average ($TRAN) slipping below its April low and trading under its moving average lines. So far, the decline has been relatively modest. But it has been enough to put some downside pressure on the Dow Industrial. In a healthy uptrend, both Dow Averages should be rallying together. At the moment, that's more of a short-term than a long-term problem. The question here is why have the transports been slipping, and whether their outlook is looking any better. The answer to the second part of that question is probably yes.
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Chart 1
AIRLINES HAVE BEEN MAIN DRAG... Airlines have been the main drag on the transportation group. Chart 2 shows the Dow Jones US Airlines Index ($DJUSAR) plunging all the way back to its February low since mid-April. That's a loss of -13% versus a -3% drop in the TRAN. The good news is that the airline index may be finding chart support around its February low. Supporting a potential bottom is the fact that the 14-day RSI (top of chart) is rebounding from oversold territory below 30. Daily MACD lines (below chart) are close to turning positive from their February low. An upturn in airlines would be a big help to the transports.
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Chart 2
DELTA AND UAL BOUNCE OFF FEBRUARY LOW -- SOUTHWEST LEADS... Airlines are leading today's rebound in the Dow Transports. Chart 3 shows Delta Airlines (DAL) rebounding nicely off its February low. The stock is up nearly 3% today and trading at the highest level in three weeks. Chart 4 shows United Continental Holdings (UAL) also rebounding off its February bottom. Southwest Airlines (LUV) has the strongest pattern of the group. Chart 5 shows LUV finding support at its 200-day moving (and well above its February low).
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Chart 3
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Chart 4
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Chart 5
KSU, LANDSTAR, AND KIRBY ARE TRANSPORTATION LEADERS... Other parts of the transportation group have held up much better than the airlines. That includes air freight (Fedex and UPS), rails, truckers, and marine transportation. In the rail group, Chart 6 shows Kansas City Southern (KSU) bouncing off its 50-day moving average today. The stock is backing off from a test of last October's high. In the trucking group, Chart 7 shows Landstar System (LSTR) also bouncing off its 50-day line. The stock has been in a sideways consolidation pattern since mid-March. In the marine transportation group, Chart 8 shows Kirby Corp (KEX) surging more than 5% to a new seven-month high. All three of those transportation leaders are trading over their 200-day averages. They present a much stronger view of the transportation sector, and suggest that the recent pullback in the Dow Transports is not that serious. That will be especially true if airlines turn back up.
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Chart 6
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Chart 7
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Chart 8
OIH BOUNCES -- DIAMOND OFFSHORE AND HALLIBURTON ARE OIH LEADERS ... Energy stocks continue to benefit from rising energy prices. Chart 9 shows the VanEck Vectors Oil Services ETF (OIH) bouncing off its 50-day and 200-day moving averages today. Two of its leading stocks show strong chart patterns. Chart 10 shows Diamond Offshore Drilling (DO) on the verge of an upside breakout. Chart 11 shows Halliburton (HAL) in a strong postion as well.
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Chart 9
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Chart 10
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Chart 11
POWERSHARES ENERGY FUND CLEARS 200-DAY LINE... The chart picture for energy prices continues to strengthen. Chart 12 shows the PowerShares DB Energy Fund (DBE) trading over its 200-day average for the first time in two years. The DBE is being pulled higher by brent and light crude, gasoline, and heating oil prices. That's supportive to energy stocks.
