E The Dow Transports: Detecting The Issues

According to the US Department of Energy, natural gas recently overtook coal as  the number one source for US electricity grid, a trend that will be the new norm. This comes at a time when the strapped consumer could use a break in their utility bills as well. This summer's scorching heat wave has been relentless. 

So, observes our Mr Holmes, transports hit a low in the fourth quarter. For the dip, this provides a buying opportunities through November. Elementary! And as you can see, this vast landscape of companies that reside in the index is one reason it gives so many "flawed" signals.It contains too many players with different exposures like macro events, supply demand issues, geopolitical machinations and the dreaded commodity space. Quite a hybrid. 

Take the rails for instance. The rails like Norfolk Southern (NSC) have been waving a lot of red flags on the coal business and the oil glut. The rails in Canada like Canadian Pacific (CP) and the ones in Mexico like Kansas City Southern (KSU) are being particularly hard hit now. Both economies Canada and Mexico are too tethered to commodities right now, much like Brazil and Australia. 

The frackers are also problematic and  another dying revenue stream for the rails due to the oversupply of oil. Thank you Saudi Arabia and now Iran. Our domestic refiners are the only bright spot on the entire energy landscape. Marathon, Valero, and Tesoro are all making money. But they are the exception right now in the oil space. Less demand for product means less demand for transporting product.

The airlines have been hit hard on fuel costs in the past. The CEOs of  Southwest Airlines (LUV) and Spirit (SAVE) recently have said their planes are full, business is good, and since both are hedged, are realizing great savings in fuel costs.  

The rails are exposed to coal, the truckers are exposed to a weak economy, housing, a constrained consumer, and increasing government regulatory control.

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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 5 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 5 years ago Member's comment

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

Wendell Brown 5 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 5 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 5 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 5 years ago Member's comment

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