Random Thoughts: Are Transportation Stocks Forecasting a Decline?
Fundamentals and psychology square off into quarter-end.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
Norfolk Southern (NYSE:NSC) messed the bed Wednesday night, substantially cutting its third quarter forecast. This follows a similar slash by Federal Express (NYSE:FDX) as the slowdown in global growth manifests in the transportation stocks (FedEx has a 10% weighting in the transportation index, and Norfolk has 7%).
I read a research report yesterday where a brave bull opined "divergences no longer matter; all that matters is the open-ended QE-normous (my wording) and percolating performance anxiety into quarter and year-end. For fund managers playing ketchup, time is most definitely not on their side.
That might prove true-the structural and psychological metrics have trumped market fundamentals for a long time-but we would be wise to see both sides, even if the tape is in "bend, not break" mode and expiration looms large.
Check the chart below; history doesn't always repeat but it often rhymes.
- They threw a LOT at yesterday's tape-fundamental softness, China trading at 2009 levels (it was flat last night), overbought conditions-but you could almost hear the bulls burp at the end of the session (as they digested the supply).
- The only potential fly I can see-other than the Federal Reserve trying to corner the global financial markets-is that expiration influences are in play. Still, the bulls will argue that it just doesn't matter and at the end of the day, price is the ultimate arbiter of our financial fate.
- I resisted the urge to punt my QQQ (NASDAQ:QQQ) puts into yesterday's slippage as I sensed expiration was pulling the QQQ toward $70 (pin action).
- I also resisted the urge buy back the Facebook (NASDAQ:FB) (that I sold as a trade) as it seemingly has favorable risk-reward relative to the high-fliers (although on a P/E basis, it's still more expensive than many of said high-fliers).
- When it doubt, sit it out, and that's what I did while maintaining my buy-stop above.
- There is a very fine line between stubbornness and patience-it's called the bottom line. Remember to respect-but never defer to-the price action.
- Last August, we asked, "Will the Next War Be Bulletless?" This morning, The Telegraph reports Beijing is hinting at a "bond attack" on Japan. This isn't the same type of escalation I anticipated but the direction of social mood is most certainly consistent.
- France's richest man has applied for Belgian citizenship-as a large tax increase for the wealthy approaches. While he promises to still pay French taxes-including the planned new 75% tax rate on incomes of more than €1 million-the timing is more than curious. You can never cage free will, right?
- Take care of the minutes and the hours will take care of themselves; good luck today, and have a great weekend-you most certainly earned it!
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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