Wednesday, July 22, 2009

Transports sending positive trend signals

If the market is right about its bullish commodity story, transportation and industrial stocks should be feeling some love. Investors know that the supply chain is an important barometer of real economic activity – when the goods are moving the companies that factor into the wheels of commerce enjoy a positive upside. That is why the trend of shipping stocks is a critical indicator of the market’s vitality. Dow Theory, for instance, links a bullish trend in the transports as a supporting measure of the trend in industrial stocks. Although this linkage is not an infallible measure of the market, it does provide us with a reason to focus on the emerging trends in transport and industrial stocks.

The Dow Jones Transport Index (DJT-I) has flat lined in the past two months after a rally off its bottom earlier in the year. However, it is a recent Stock Trends Bullish Crossover, indicating that the short-term 13-week moving average trend line has crossed above the long-term 40-week moving average trend line. Similarly, the S&P Industrials Index turned Stock Trends Bullish at the beginning of the month. Both indexes had been in Stock Trends Bearish trends since the beginning of 2008. The timing of this change in trend category follows the emergence of a Bullish trend for the benchmark S&P 500 Index.

Transport stocks that have been highlighted recently in Stock Trends screens include CSX Corp.(CSX-N), Overseas Shipholding Group Inc.(OSG-N), FedEx Corp. (FDX-N), and Union Pacific Corp.(UNP-N). Leading the Marine transports is International Shipholding Corp (ISH-N) which has advanced 19% since the stock’s Bullish Crossover in mid June. Although Canadian National Railways (CNR-T) and Canadian Pacific Railway (CP-T) are underperforming the group, Canadian truckers Trimac Income Fund (TMA.UN-T), TransForce Inc. (TFI-T), and Mullen Group (MTL-T) have been prized Stock Trends Bullish stocks. Stock Trends also gave a positive nod to logistics software supplier Descartes Systems Group (DSG-T) a couple of months ago.

Additional support for the bullish prospect for transports is found in the industrial sector. Leading the group is Oshkosh Corp (OSK-N) a manufacturer of industrial transports, is trading at a 52-week and outperforming the S&P 500 Index by 115% in the last three months. It turned Stock Trends Bullish at the end of May at $11.87 and is now making new 52-week highs above $26. Other land transport equipment stocks out-performing the broad market and in Stock Trends Bullish trends include Cummins Inc. (CMI-N), Greenbrier Cos. (GBX-N), and Trinity Industries (TRN-N). Caterpillar Inc. (CAT-N) is a current Stock Trends Bullish Crossover, and pleased investors this week with a positive outlook - beating earnings expectations. The stock jumped to a Tuesday high of $41.45 - 23% above last Friday’s close - before settling back its current level at $38.50. Investors are encouraged by the improved condition of these industrials. They are canaries flying in the mine shaft.

A quiet little canary Canadian investors can keep an eye on is Stella Jones Inc. (SJ-T). The stock of this industrial supplier of utility poles and railway ties has proven in the past to maintain consistent price trends. Before it turned bearish at the beginning of 2008, SJ had maintained a Stock Trends Bullish trend for over five and a half years. The stock had a Stock Trends Bullish Crossover at the beginning of June but has pulled back to its trend line support level. If the stock advances off support, investors can put another check mark next to their list of bullish indicators.

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