The markets rebounded sharply yesterday, and it's time for traders to look under the hood to see which sectors led the way higher. Ideally, the stock market should be led higher by stocks typically associated with a recovering or growing economy. The transports are one group that performed very well, with the Dow Jones Transport Average rallying to new recovery highs, well ahead of the general markets. Whether they specialize in land, air or sea transport, this group delivers the goods Americans use everyday, which is why these stocks tend be one of the first groups to show signs of a recovery.
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The transportation sector is a category of stocks related to the transportation of goods for consumers. This group is very sensitive to both the price of oil-based products and the strength of the economy. When the price of oil rises, transport stocks typically drop as it becomes more expensive for them to deliver products. Conversely, a rebounding economy tends to provide a boost to transports as market participants position themselves for the prospects of increasing demand for goods.
The rail companies are one subset of the transports and CSX Corporation (NYSE:CSX) is one of the leading stocks in this area. CSX is also performing well as a stock, and it is currently close to a breakout. The company cleared a trading range in September and then rallied through early November before it began to trade sideways as the general markets began a correction, staying between $60 and $62.50 for a few weeks. This was bullish behavior as CSX refused to give up much ground in the face of general market weakness. CSX is now attempting to clear this small consolidation and with a strong push, it could test its all-time highs near $70.
Moving from land to air transport, United Continental Holdings (NYSE:UAL ) is an airline that is also showing bullish behavior. UAL cleared a base in October and also settled into a tight consolidation as the markets corrected. The current consolidation is taking the shape of a bull flag and a move above $29.75 could lead to a powerful continuation of the October breakout. (For more, see The Anatomy Of Trading Breakouts.)
Among air and sea transports, Teekay Lng Partners (NYSE:TGP ) is a shipper that is showing behavior consistent with the bullish behavior mentioned above. TGP built a base from July through the end of October as it traded between $30 and $35 per share. It recently climbed above this level even as the markets were showing weakness. Traders should focus on stocks are setting new highs well ahead of the general stock market as TGP is doing.
United Parcel Service (NYSE:UPS ) is a transport company that spans air and land transport. UPS is a good indicator of consumer strength because it ships a very large portion of the goods bought by Americans. The holiday season is typically the busiest time of year for UPS and the stock is making an important move just as this season approaches. UPS had a sharp pullback from May through July, but recovered all of its losses gradually over the next five months. It had been trading in a tight range for most of the fall before finally breaking out a few sessions ago. UPS is clearly above its base now and traders should monitor the $70 area for support if it pulls back.
The fact that the transports are hitting new highs while the general markets attempt to end their recent pullback bodes well for the prospects of higher prices. Beyond this, it is a good sign that participation is occurring from all three categories of land, sea and air transport. Each of these categories services a different part of the economy and it is a good sign that they are all moving in unison. It is also a good sign that they are moving up despite the gradual rise in oil prices over the past few months as well. All of these signs are positive, giving traders reason to suspect this group is headed higher. (For more, see 8 Transport Stocks Gaining Momentum.)
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.