Transports Bounce As Truckers Rally

10/22/2012


Helped by better-than-expected economic data, the Dow Transports have rebounded within 4.5% of their February closing high of 5,368.93. A close above that level would reconfirm the bullish primary trend under the Dow Theory. With another failed attempt at new highs and a breakdown below the June closing lows of 12,101.46 in the Industrials and 4,847.73 in the Transports, the primary trend would be bearish.

Trucking stocks have been among the market's best performers over the past month, reflecting some surprisingly strong earnings news. The railroad group has lagged, as sluggish volumes in coal and agricultural commodities are expected to continue in the December quarter and early 2013. But railroad stocks have been moving mostly sideways since earnings season began, and airline stocks have rallied on a dip in fuel prices and signs of improving demand from U.S. consumers.

Will signs of strength in the U.S. economy — including surging housing starts and robust retail sales — be enough to counter a slowdown in global trade and weakness in overseas economies? The Transports tend to do a good job of answering such questions, and we would view a breakout above 5,368.93 as confirmation that the majority money opinion is bullish.

For now, our three-part strategy is unchanged. First, keep 10% to 15% of equity portfolios in a short-term bond fund. Second, watch the averages. Third, seek opportunities one stock at a time, looking for modestly valued shares supported by solid profit-growth prospects. Top picks for new buying include Express Scripts ($65; ESRX) and Google ($745; GOOG).


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