UPS LEADS TRANSPORTS HIGHER TODAY -- CSX AND NORFOLK SOUTHERN LEAD STRONG RAIL GROUP -- TRUCKERS RYDER AND CH ROBINSON ARE ALSO LEADING -- RISING OIL PRICES HAVE HURT AIRLINE PERFORMANCE -- BUT ARE BOOSTING ENERGY SHARES
DOW TRANSPORTS REGAIN 50-DAY AVERAGE... The Dow Jones Transportation Average has been trying to gain altitude after successfully bouncing off its 200-day moving average over the past month. But it's been a choppy advance. Chart 1 shows the Dow Transports regaining its 50-day average today after being pulled down yesterday by falling airline stocks. The relative strength ratio (upper box) shows the transports gaining some ground on the S&P 500 after lagging behind during the month of June. Today's biggest percentage gainer in the $TRAN is United Parcel Service (UPS). Chart 2 shows UPS jumping 5% and challenging its June peak. The stock has also climbed back above both moving average lines. Rails and truckers are also strong.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
RAILS LEAD TRANSPORTS HIGHER ... Railroad stocks remain the strongest part of the transportation group. Chart 3 shows the Dow Jones Railroad Index ($DJUSRR) reaching a new record over the past week. Its relative strength line shows it outpacing the S&P 500 this year (by a ratio of 13% to 6%). That makes rails a market leader as well as a transportation leader. Chart 4 shows CSX, which is the current rail leader, hitting a new record last week. Chart 5 shows Norfolk Southern (NSC) reaching a new record high today. A strong rail sector is good for the economy since it's the prime mover of freight and raw materials. Rails are also the least impacted by rising fuel costs, which have weighed so heavily on airline stocks. Truckers are the second strongest group.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
RYDER AND CH ROBINSON ARE ALSO STRONG ... Stocks tied to trucking are also helping lead the transports higher. Truck leasing company Ryder (R) is the second biggest percentage gainer in the transports today. Chart 6 shows the stock also surging 5% today which puts it back over its 200-day average and at the highest level in five months. Chart 7 shows trucker C.H. Robinson Worldwide (CHRW) challenging its June high and on the verge of an upside breakout. Jetblue (JBLU) is down -3% and weighing heavily on airline stocks which have been the biggest drag on the transports.
(click to view a live version of this chart)
Chart 6
(click to view a live version of this chart)
Chart 7
AIRLINES ARE HURT BY RISING FUEL PRICE... Airlines have been the weakest part of the transportation group and one of the weakest parts of the stock market this year. Chart 8 shows the Dow Jones Airlines Index ($DJUSAR) in a downtrend since the start of the year. It's 2018 loss of -12% compares to a 2% gain in the Dow Transports and 6% gain in the S&P 500. By comparison, rails and truckers have gained 13% and 5% respectively. The biggest problem facing airlines is the rising cost of fuel.
(click to view a live version of this chart)
Chart 8
OIL IMPACT ON AIRLINE PERFORMANCE ... Chart 9 shows the impact that the price of oil has on the relative performance of airline stocks. The solid line is a relative strength ratio of the Dow Jones Airlines Index divided by the S&P 500 over the last five years. The gray area tracks the price of WTIC crude oil. It seems clear that they generally trend in opposite directions. The 2014 drop in oil made airlines a market leader that year (rising ratio). Since crude turned up at the start of 2016, and again in the middle of last year, airlines have been market weaklings (see arrows). While the price of oil nearly doubled over the past year, airlines were the only transportation group that lost ground. And were also one of the market's weakest groups.
(click to view a live version of this chart)
Chart 9
RISING CRUDE OIL BOOSTS ENERGY SECTOR... Energy stocks are one of today's strongest sectors, and the fourth strongest for the year. That's due of course to rising oil prices. Chart 10 shows the Energy Sector SPDR (XLE) trading sideways since mid-May after hitting a three-year high. The sideways pattern has the look of a normal consolidation within its major uptrend. The top box shows the United States Oil Fund (USO) climbing nearly 1% today to keep its bullish pattern of "higher peaks" and "higher troughs" intact. That's giving energy shares a boost. A pullback in an overbought dollar is also giving a boost to commodity prices which are in an oversold condition. In an environment of rising oil prices, energy stocks are a much better bet than airlines.
