Record High Transports a Second Chance to Sell

TheStreet.com

NEW YORK (TheStreet) -- The Dow transportation average and the Dow industrial average both set new all time closing highs on Tuesday -- 6397.34 transports and 15,056.20 industrials. This provides another Dow Theory Buy Signal, but in my opinion the transportation sector remains rated "avoid-source of funds" and stocks in this sector should be sold.

Transports are up 20.5% year to date vs. 14.9% for the industrials, but the transportation sector is 17.6% overvalued. There are 184 stocks in the transportation sector with only four buy rated stocks and 16 rated hold. With 101 sell rated stocks and 52 strong sell rated stocks, 83.2% of all stocks in this sector are rated sell, thus the "avoid-source of funds" rating for the sector.

In addition to this warning on transports, www.ValuEngine.com shows that 65.9% of all stocks are overvalued due to this week's market strength plus the rise in the 30-Year Treasury bond yield to 3.00% from 2.82% a week ago.

It seems like each time we have these signals the market sets a near term top. On March 18 I wrote, 12 Sell Downgrades Threaten Dow Transports and a day later the Dow transportation average set a tradable high at 6291.65 then traded down 6.6% to a low of 5878.12 on April 5.

In today's post I show four additional downgrades to sell; two more railroads and the two air freight companies. Now all eight transportation stocks I have been tracking are rated sell. This gives investors a second chance to book profits in the stocks I profiled today.



Con-Way ($34.33 vs. $37.70 on March 18): Missed EPS estimates by eight cents on May 1 earning 19 cents a share. The stock held its 200-day simple moving average at $31.05 on May 2 and the 50-day SMA at $34.65 was tested on strength on May 7. The weekly chart profile shifts to neutral from negative on a close this week above the five-week modified moving average at $34.01. My monthly value level is $32.30 with a semiannual risky level at $39.30 for this sell rated trucker.

CSX ($25.33 vs. $24.02 on March 18): Beat EPS estimates by five cents on April 16 earning 45 cents a share. The stock set a new 52-week high at $25.33 on May 7 and has been downgraded to sell from hold. The weekly chart profile is positive but overbought with the five-week MMA at $24.24. My monthly value level is $21.87 with a weekly pivot at $25.61 and a semiannual risky level at $28.19.

FedEx ($99.52 vs. $109.07 on March 18): Missed EPS estimates by 15 cents on March 20 earning $1.38. The stock stabilized around its 200-day SMA at $93.99 between April 17 and May 3, and closed just above its 50-day SMA at $99.15 on May 7 and today has been downgraded to sell from hold. The weekly chart profile shifts to neutral from negative on a close this week above the five-week MMA at $97.51. My weekly value level is $86.24 with a monthly risky level at $101.47 for this hold rated air freight company.

JB Hunt Transport ($73.04 vs. $74.00 on March 18): Missed EPS estimates by three cents on April 11 earning 61 cents a share. The stock has been above its 200-day SMA at $61.63 year to date, which reflects the risk of reversion to the mean. The weekly chart profile shifts to neutral from negative given a close above the five-week MMA at $71.39. My quarterly value level is $66.35 with a weekly risky level at $75.36 for this sell rated trucker.


Norfolk Southern ($78.41 vs. $75.62 on March 18): Beat EPS estimates by five cents on April 23 earning $1.22. The stock set a multi-year high at $78.78 on May 3. The weekly chart profile is positive but overbought with the five-week MMA at $75.82. My semiannual value level is $74.99 with an annual pivot at $75.90 and annual risky level at $82.73 for this sell rated railroad.

Old Dominion Freight ($40.15 vs. $37.53 on March 18): Beat EPS estimates by six cents on April 25 earning 47 cents a share. The stock set a multi-year high at $40.34 on May 7 and has been above its 200-day SMA at $33.64 year to date, which reflects the risk of reversion to the mean. The weekly chart profile is positive but overbought with the five-week MMA at $38.18. My quarterly value level is $37.20 with a weekly pivot at $39.75 and monthly risky level at $41.24 for this sell rated trucker.

Union Pacific ($153.72 vs. $141.69 on March 18): Beat EPS estimates by seven cents on April 18 earning $2.03. The stock set a multi-year high at $154.00 on May 7 and has been downgraded to sell from hold. The stock has been above its 200-day SMA at $129.20 year to date, which reflects the risk of reversion to the mean. The weekly chart profile is positive but overbought with the five-week MMA at $145.23. My monthly value level is $144.59 with a weekly pivot at $149.14 but no risky levels.


United Parcel Service ($88.66 vs. $85.47 on March 18): Beat EPS estimates by three cents on April 25 earning $1.04. The stock set a multi-year high at $88.95 on May 7 and has been downgraded to sell from hold. The weekly chart profile is positive but overbought with the five-week MMA at $85.21. My monthly value level is $84.23 with a weekly pivot at $85.49 with no risky levels.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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