What's happening to transports? Is it a case of missed signals, or mixed signals? And how would Sherlock Holmes unlock the secret?
Ah, the power of observation! As the great Sherlock Holmes would say to Dr. Watson, it's elementary. There have many books written on the superior skills of deductive reasoning the talented Sherlock Holmes acquired. One of the most notable skills was that he observed things that other people missed. He often said, “You see, but you do not observe, Dr. Watson.”
The distinction is clear. Being observant and taking time to spot the things that often get overlooked when people panic, assume, and rush around without consideration for the finer details are the keys to thinking like Sherlock and giving you an edge. I say this because the herd is often wrong, too emotional, and too trigger-happy to dump shares prematurely before all the facts are known. I think that is the case right now with the transports (as represented by the iShares Dow Jones Transportation Average ETF (IYT).
Stocks ended lower on Thursday, led by transportation stocks due to disappointing numbers from Union Pacific (UNP). The Dow Jones Transportation Average is now lower by over 11% year-to-date, barely holding onto its 50-day moving average since April. And now the 200-day moving average is showing signs of rolling over, a harbinger of an ill wind looking further out. Sherlock would be particularly focused on longer-term.
Seasonally, between mid-July and early October is the peak period of weakness for the industry, usually due to high energy prices in the summer months. Aha! This time it is different, so this weakness is flying in the face of our current glut in supply you say? Not so fast; you can't discount the fact that overall, depressed energy prices are challenging the industry as well.
And don't forget about natural gas. Low energy prices have made natural gas more competitive with “old man coal,” which saw freight volumes at Union Pacific drop by a whopping 26% in the second quarter. Union Pacific stock sold off on that news.
