At this point in time, it goes without saying that the slowdown in economic activity around the world due to the coronavirus pandemic has hammered asset prices across the transportation sector. While there are no sectors that have escaped the wrath of selling pressure, the significant role that transportation plays in our modern society has become clearly evident and is much of the reason the sector is of specific interest to long-term investors.
Followers of technical analysis may want to take a look at three charts below because they suggest that bulls could find reprieve near current levels should nearby trendlines be able to hold up as support.
SPDR S&P Transportation ETF (XTN)
One popular technique for determining the future direction of asset prices in a specific sector such as transportation is to analyze the chart of popular exchange-traded products such as the SPDR S&P Transportation ETF (XTN). With 43 holdings from across the U.S. transportation sector – including air freight and logistics, railroads, marine, marine ports and services, airlines, and trucking – the ETF's chart clearly shows the severity of the recent sell-off.
The weekly chart shown below also offers long-term traders an interesting perspective because prices are currently testing the support of the 2016 lows. The nearby support and extremely oversold reading on the relative strength index (RSI) indicator looked at together suggest that prices could be due for a bounce higher. From a risk management perspective, bullish traders would most likely look to protect their long positions against a continued sell-off by placing stop-loss orders below the lower trendline.
Old Dominion Freight Line, Inc. (ODFL)
Another weekly chart within the U.S. transportation sector that could capture the attention of bullish traders is that of Old Dominion Freight Line, Inc. (ODFL). Taking a look at the chart below, you can see that the recent sell-off has sent the price toward the combined support of two dotted trendlines, which have guided prices in the past.
The intersection of the trendlines near $160 could provide followers of technical analysis with an idea for where to place buy and stop orders over the weeks ahead. Traders would most likely hold a bullish outlook on the stock until the price notches several consecutive closes below the two dotted lines.
Werner Enterprises, Inc. (WERN)
Another transportation stock that could capture the attention of active traders is Werner Enterprises, Inc. (WERN). In this case, the nearby support of a long-term ascending trendline and its 200-week moving average could be used by traders as guides for placing orders.
Buy orders will most likely be placed as close to the long-term support levels as possible in order to maximize the risk/reward. Conversely, stop-losses will most likely be placed below $29 to protect against a continued sell-off should underlying fundamentals worsen.
The Bottom Line
The transportation sector is demonstrating why it is one of the most important sectors in our modern society. Extreme retracements toward multi-year levels of support, as shown on the weekly charts across the sector, some of which we discussed above, could be presenting investors with a lucrative buying opportunity for those willing to assume the risk.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.