The stocks in the Dow Jones Transportation Average are getting the bid that they needed for this overall market to continue its march higher. Going back and doing the work, it’s hard for stocks as a group to keep ripping without rotation into some of the underperforming areas. Transports were right near the top of our underperformer list for a long time.
This is no longer the case. We’ve already talked about how Transports were the best performermers in the world for the month of July. This weekend we also pointed to the change in trend relative to the S&P500.
Today, let’s look deeper into the components of the Dow Jones Transportation Average. Remember there are 20 of them and consist of Airlines, Rails, Trucks, Logistics etc. This chart plots the drawdown from 52week highs on the x-axis and the y-axis represents the performance since June 5th, which was the former highest weekly close for the index:
Click on Chart to Zoom in
Notice the Airlines to the lower right. That shows its underperformance, as they’re all well below the zero line, as well as largest drawdown from new 52-week highs. Towards the upper left, you’ll find the logistics companies ($FDX & $UPS). The rest are also pretty much pushing up against new highs.
If Transportation stocks are going to outperform for a sustainable amount of time, this would certainly be a logical place for it to start. Look at a long-term chart of the underperformance of Transports relative to the strength in the Nasdaq. In the blue square we zoom in on the daily timeframe to show both the double bottom in the ratio and bullish momentum divergence:
I think it’s quite obvious that this area needs to continue to be on our radar. I encourage you to go through all 20 stocks in the Dow Jones Transportation Average, and even dig deeper into the entire S&P Industrials Sector. You’ll find some gems.
Here are a few that stood out to me with more favorable risk vs rewards that are well-defined: