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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.

Random Thoughts
  • 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).
  • 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.
  • 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!

Twitter: @todd_harrison

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Position in QQQ
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