E The Dow Transports: Detecting The Issues

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 Averageis 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.

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Disclaimer: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer ...

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Gary Anderson 4 years ago Contributor's comment

If the rest of the market is a bubble as suggested by Harry Dent, perhaps this is a good call. Don't buy the transports!

Vintage Vixen 4 years ago Member's comment

Blair Jensen has an article on TalkMarkets today (Saturday) on this topic, would love to see your reaction!

Marcy Brown 4 years ago Member's comment

Nicely done Dr. Wydra! You've certainly made this issue seem quite elementary!

Wendell Brown 4 years ago Member's comment

I wish you'd drawn clearer inferences between energy and freight as it affects transports. You talk a lot about energy but less about the other consumer discretionary issues and how they impact trucking, delivery services etc.

James Goldstein 4 years ago Member's comment

Good point, do you have any insight to add here? I'd be curious to know. Otherwise, very good read. Thanks for sharing.

Old Time Investor 4 years ago Member's comment

Er, you do know that Sherlock Holmes wasn't a real person, right? So the books about detecting are really about the mind of Arthur Conan Doyle....

Anastasija Janevska 4 years ago Member's comment

Lol, yes I think it's obvious she knows he's a fictional character.