NARROW RALLY IS CONCERNING
NEWS: The Dow finished the session up 29 points or 0.3% at the best
level in one month. The S&P 500 added 5 points or 0.4%. The NASDAQ
was the big winner, up 1.0% or 22 points.
THE BOTTOMLINE: The short-term rally is beginning to look a bit
exhausted and a few days of selling are likely right around the corner.
When a rally is not fueled by the majority of sectors in the market,
the likelihood of the upside continuing is small. The main ingredient
for the most recent success in the market has been the financials,
homebuilders, and airlines. All three sectors were at levels that made
them attractive and the shorts were forced to cover. However, looking
out the next few months it is not clear that any of the three sectors
are out of the woods or ready to put together a sustainable rally.
Each rally attempt that began with the VIX at a high (January and
March) was short-lived and a pullback occurred within two weeks. I
believe the trend will continue and selling should begin by the end of
the week. Therefore, if you have positions you would like to sell after
the rally there are two strategies you could implement. The first is to
sell now. The second is to place a trailing stop-loss in the event the
rally continues a few days and if any pullbacks occur you will be
protected.
THE DAILY ETF UPDATE - LOWER OIL BOOSTING TRANSPORT ETFS
NEWS: Over the last six trading sessions the United States Oil ETF
(AMEX: USO) has fallen 11% and at the same time the iShares DJ
Transportation Average ETF (NYSE: IYT) has risen 10%. But for the year,
both ETFs are in positive territory. So what is the true relationship?
THE BOTTOMLINE: I was amazed to find that IYT is up 13% in 2008 even in
the face of oil prices surging over 30%. The ETF has been boosted not
only by the railroad stocks, but also the truckers, and a lone airline.
The biggest gainer in the ETF was CSX Corp (NYSE: CSX), the railroad
stock is up 48% in 2008 and closed today at a new one-month high after
suffering a 20% pullback in June and early July.
Trucking companies JB Hunt Transport Services (NASDAQ: JBHT) and YRC
Worldwide (NASDAQ: YRCW) both jumped over 20% this year JBHT closed the
session at the best level ever! The diversification across the
different transportation sectors has allowed IYT to continue to move
higher in the face of rising oil prices. The key was higher demand for
the rails and trucks to transport commodities around the US. Even
though the airlines were hurt by the rising fuel costs, the weakness
was offset with the other stocks in the ETF. If oil continues to fall
the airlines will lead the ETF higher. In the last 6 sessions both CAL
and AMR have surged over 110%.
My analysis of IYT is that it could be bought on any pullbacks in the
coming weeks as a play on lower oil or continued demand for commodities
such as grains or coal in the US.
