RISING CRUDE OIL IS PUNISHING TRANSPORTS -- RISING BOND YIELDS MAY THREATEN TECH STOCKS
RISING OIL PRICES HURT TRANSPORTS... Transportation stocks are one of the groups most sensitive to the direction of energy prices. That makes sense since fuel is so important to their bottom line. And not surprisingly, they've been one of the market's weakest groups over the last month. The daily bars in Chart 1 show the Dow Transports peaking at the end of July and losing ground since then. The solid black line shows the price of WTIC crude oil rising during that period and trading over $90 a barrel for the first time since last November. Airlines have been the biggest transportation losers.
AIRLINES TUMBLE... Rising energy prices have taken the biggest toll on airline stocks. Chart 2 show the NYSE Airline Index falling to the lowest level in six months, and trading well below its 200-day average. The only encouraging sign is proximity to potential support formed during the spring and an oversold condition. But it's clear that rising energy prices are hurting the group. Rails and delivery services have also been hit hard. And one stock in particular in the second group.
UPS HITS NEW LOW FOR THE YEAR... Chart 3 shows United Parcel Service (UPS) falling below its spring low to the lowest level since last October. It has also fallen well below its moving average lines which are in bearish alignment (50-day below 200-day average). The rising price of crude oil (WTIC) also shows the damage that is having on the stock.
The damage being done to transportation stocks by rising energy prices isn't surprising. The bigger question is what rising energy prices (which contributed to higher CPI and PPI numbers for August) might do to the broader market. Rising energy prices may also may be contributing to higher bond yields which are testing last year's high. An upside breakout there could cause more problems for the stock market and the economy.
TEN-YEAR YIELD NEARS 16-YEAR HIGH...Chart 4 shows the ten-year Treasury yield testing its high formed last October. A decisive close above that level would push the TNX to the highest level in sixteen years (since 2007). Rising bond yields are usually not good for stock prices. Especially technology stocks.
TECHNOLOGY SPDR TESTING PREVIOUS PEAK... Technology (and communication service) stocks have been the strongest part of the market this year. But they've been losing ground on a relative basis. Technology stocks have been the market's weakest sector over the last three months (and again this week). And they're undergoing an important test of major overhead resistance. The weekly bars in Chart 5 show the Technology SPDR (XLK) meeting resistance at the previous peak formed near the end of 2021. At the same time, its 9-week RSI line in the upper box is weakening. As are the weekly MACD lines in the lower box (see circles). Tech stocks are especially sensitive to the direction of bond yields. The fact that bond yields and tech stocks are testing major peaks at the same time is especially noteworthy. And suggests that an upside breakout in bond yields could lessen the odds for an upside breakout in the XLK.
