Should We Be Buying Transportation Stocks?

October 15, 2021No Comments

Hello, and welcome to the Smart Money Dumb Money show. And I am your host, Keith Richards, and I’m President and Portfolio Manager at ValueTrend Wealth Management. And today we’re going to revisit the transportation sector. I talked a little bit about that on my blog about Dow Theory Divergence, and I noted that the transportation stocks have been diverging for a good chunk of 2021 against the S&P 500. What that means in English is they were going down and the S&P 500 was going up. That tends to be a leading indicator for correction. So, come September. We did get that correction. Now, I’m speaking to you on October the 14th and the market does seem to be strong right now. That can be a pattern in October where you get a little of the correction into late September and early October, then you get a rebound.

And then sometimes there’s a second leg of that correction to the second half of October, we shall see if that happens. Whatever the case, we’re here to talk about transportation stocks. And this video was inspired because I conducted a seminar for the Canadian Society of Technical Analysts, just this past Tuesday. And a question came up from one gentleman. He asked, “Should we be buying the Canadian rail stocks like CP rail?” Now the Dow Jones transportation index, which I’m going to be looking at today is not obviously a Canadian index. So, companies like CP and CN rail and whatnot are not in that index, but we’ll take a look at it anyway, because transport is on either side of the border seem to be moving fairly in sync lately. I’m going to go right to that CP chart just because it was the question that inspired this blog and this video, and then we will go from there.

Canadian Pacific Railway CP.TO 14-Oct-2021 | TRANSPORTATION STOCKS

What I want you to see here is the this is the CP rail chart. So, to answer the gentleman’s question, I noted on the on the seminar, even though I didn’t put the chart up when I was speaking about it is that the Canadian rails are still in a bearish trend and CP rail is attempting to break that down trend, but it isn’t breaking it yet. The blue line here you have is the 200-day moving average. It is decisively below that moving average. And this right here is accumulation distribution, which is really just money flow. Money going in and out of the stock. And you can see it’s been anything but bullish. I hope that answers the question as to whether the CP rail is ready to buy.

Dow Jones Transportation Average TRAN 14-Oct-2021 | TRANSPORTATION STOCKS

It could be if it breaks the down trend and if money flow picks up, but that hasn’t happened yet. I’m going to go right to the transportation index. This is what I was viewing through much of 2021. And I have talked about this before on blogs. And that is the black line, which is the transportation index was diverging negatively. It was going down while the red line, which is the S&P 500 was going up. Now we have the S&P 500, correct. Which was led by that very traditional leading indicator that the Dow transports, failing to confirm with the industrials. All right. This is not the S&P 500, I should say, this is the industrial index, but it’s one in the same, because if you looked at the S&P 500, it looks very similar to the industrials.

Whatever the case, now, we’re starting to see a rally on the transports. You can see here, this downtrend that really began around April of 2021 is breaking it along with the us, sorry that the industrials and the S&P 500, which are starting to have a rally after a correction. So, the question would be, well, gee, you know, given this strong move in the transport, should we be buying transport stocks? And now I’m just going to read through a number of the stocks that comprise that Dow transports index. And so here we have the American Airlines, and you can see if we go back to April, and you can see that the index has definitely not been showing much life lately. So really, it’s still in a down trend, but this is a weekly chart. The money flow is not very positive on American Airlines.

American Airlines Group, INC AAL 14-Oct-2021 | TRANSPORTATION STOCKS

I’m going to use some daily charts for a member of the other stocks, but this is another Canadian stock is it has no relationship to the actual Dow transports, but Canadian investors tend to watch this video.


So, I thought I’d throw a couple in, you can see that the Air Canada is not doing any better than American Airlines. Let’s leave that. We just looked at CP. Let’s look at FedEx.


Well, this is a daily chart, so it’s a little bit closer look, but this is the 200-day moving average here. And you can see it moves sharply below in fact gap down. And it’s really not. You can see the money flow has not been positive. It’s definitely not showing any signs of turning around. So, what is it that’s pushing the transport index up?

JB Hunt Transport Services, Inc JBHT 14-Oct-2021

Well, it seems to be the actual freight forwarders transportation stocks that are more involved with trucking and whatnot. So JB Hunt they’re moving up and that might be within the index. Something to look at because it’s above the 200-day moving average and money flow isn’t bad. So, there’s one so far that looks okay on a group of mostly not.

Ryder System, Inc R 14-Oct-2021 | TRANSPORTATION STOCKS

So, okay. Looking Ryder System, similar sort of business. Not exactly, but they are moving up there above the 200-day moving average, and they have good solid money flow. So again, to paint the transports with one brush, I don’t think we should do that.

Union Pacific Corp UNP 14-Oct-2021

This is Union Pacific and Union Pacific did have a nasty September, but generally had been trading fairly sideways. To me. It’s a fairly flat-looking stock despite the September sell-off.

I don’t know if I’d be too excited about this. Yes, it’s above the 200-day moving average, but I think it’s just going to move back into this cluster. So, generally speaking, when we look at the transport index, we see that yes, it’s obviously being driven by something that appears to be the more land shipping type of companies out there, and a few select others. It’s not a broad-based index, a rally at this point for the transport. So, I’m a little bit cautious before suggesting that now is the time to be jumping on the transport stocks. So, I do hope that offers some input for investors who are looking at the transportation stocks, because I think at this point it’s a real stock pickers game. There are a couple in there that could be bullish, but by and far, the index as a whole doesn’t look all that bullish. Thanks for watching and have a great weekend.

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