Transports and truckers surge

From a seasonal perspective, transportation stocks appear to be following the script and rallying in early May.

By May 7, 2013 2:09PM

Movers copyright Exactostock, SuperStock, SuperStockBy Tom Aspray 

Though the Dow Industrials were down Monday and the S&P 500 only had a slight gain, the Dow Jones Transports were up 1.27%. Two trucking companies were big gainers as YRC Worldwide (YRCW) was up 41% and Arkansas Best (ABFS) was up almost 40% for the day on ten times the average volume.

The Dow Jones Transports closed at new all-time highs, and it is believed by many to be a leading indicator of future economic growth. There are five main industry groups that make up the transports: delivery services, marine transportations, railroads, transportation services, and trucking.

After Monday's action, there is likely to be more focus on many of the other trucking companies but there is another transport industry group that looks more interesting to me right now.

Click to Enlarge

Chart Analysis: The daily chart of the iShares Dow Jones Transportations (IYT) completed its flag formation, lines a and b, last Friday.

  • The formation has upside targets in the $119-$120 area.

  • The daily relative performance now appears to have completed its bottom formation, line c, as it has moved above its WMA, as well as the previous peak.

  • The weekly RS line (not shown) has also moved above its WMA.

  • The daily on-balance volume (OBV) has also completed its trading range, lines d and e.

  • The strong volume on Friday was a positive sign.

  • There is first support now at $110.50 to $109.40 and then at $107.45.

The DJ US Delivery Services topped out in mid-March in the $655 area before its correction.

  • The decline violated the 38.2% Fibonacci retracement support but held above the 50% support at $602.50.

  • The industry group has closed well above the April highs confirming that the correction was likely over.

  • There is initial support at $636 with further in the $628 area.

  • The relative performance has turned up from support, line f, and moved above its WMA.

  • The OBV has been strong since it surged above its WMA on April 24 and continues to act strong.

  • The 127.2% Fibonacci retracement target is in the $680 area.

Click to Enlarge

FedEx Corporation (FDX) had a sharp drop in March as it missed analysts’ estimates and closed the week sharply lower.

  • By April 18, it had dropped to a low of $90.61, which was a decline of over 17% from the high at $109.66.

  • The decline tested the weekly uptrend, line b, that goes back to the 2012 lows.

  • The weekly chart shows that FDX broke through long-term resistance, line a, in early 2013.

  • The recent drop has retested the breakout level.

  • The relative performance has reached long-term support at line c, so this week's close could be important.

  • The weekly OBV looks much stronger as it has turned up from its long-term uptrend, line d, and is back above its WMA.

  • The quarterly pivot and first strong resistance is at $88.77.

The daily chart of FedEx shows that last Thursday, a doji was formed with a high at $93.11.

  • A daily HCD buy signal was confirmed on Friday and a weekly close above $95.14 will also trigger a weekly HCD.

  • The correction filled the gap going back to the start of the year, line e.

  • The longer-term daily uptrend, line f, was also tested.

  • The daily OBV has dropped back to its long-term support (line g) before it moved back above its WMA, therefore we have multiple positive signals from the OBV.  

  • There is first support at $93.60-$94.75 and then at $91.84, which was the pre-doji low.

What it Means: The completion of the correction in the iShares Dow Jones Transportations suggests it has quite a bit of upside potential. 

A slight pullback in IYT, as well as the transport stocks like FedEx Corporation should be a buying opportunity. Its main competitor, United Parcel Service (UPS), made a new 52-week high on Monday.

How to Profit: For the iShares Dow Jones Transportations, go 50% long at $110.18 and 50% long at $109.42, with a stop at $105.44 (risk of approx. 3.7%).

For the FedEx, go 50% long at $94.68 and 50% long at $93.54, with a stop at $89.54 (risk of approx. 4.9%).

May 7, 2013 10:43PM
Echo Automotive [ECAU] needs to get their sh$t together & RULE this increase with its idea of Hybrid delivery truck transformation vehicle up-grades System.
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