Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘Dow Jones Transportation Index’

The Stocks Making a Comeback in the Last Two Earnings Seasons

By for Profit Confidential

Stocks Making a Comeback in the Last Two Earnings SeasonsWhat has been very encouraging over the last two earnings seasons is the strength we’re getting in small-cap technology companies (stock market action aside). A lot of smaller technology companies are reporting a significant improvement in revenues, and that means that consumers are opening up their wallets, if only just a little.

I’m not a fan of large-cap, retail technology stocks as stock market investments. Sure, Apple Inc. (NASDAQ/AAPL) is a great company, and I like their computers, but the company just priced itself out of its own market. Apple is now struggling to grow. Dell Inc. (NASDAQ/DELL) did the same thing. It priced itself out of its own market (the other way around); and while it once was a great investment on the stock market, it’s been terrible for the last dozen years.

What we’re getting now are countless smaller names in enterprise technology saying that their revenues are growing, which is more important than earnings growth. This is exactly what the economy needs. Big-cap companies will continue to have to deal with weakness from global operations; but domestic small-cap tech stocks are like a breath of fresh air, and the stock market is beginning to notice.

Take a look at Qlik Technologies Inc. (NASDAQ/QLIK). This is the second growing company I recently found out of Radnor, PA. (See “Great Old Economy Business That Isn’t Full of Hot Air.”) Qlik makes business intelligence software, which is used by corporate and government customers to share data. This is a growing company, but the position slowed on the stock market last spring, after a very strong start in 2010. … Read More

First-Quarter Earnings the Catalyst for Correction?

By for Profit Confidential

First-Quarter EarningsNo matter how you look at this stock market, the fact of the matter is that a lot of stocks are trading right at their all-time or 52-week highs on the back of mostly flat earnings. This makes it tough to be a buyer. In fact, I wouldn’t be a buyer in this market at all.

Sure, there are trades out there; there always are. And yes, stocks aren’t expensively priced, but that’s the point. They are fairly priced, because revenues and earnings growth are so modest. This is the time to reap, not sow new positions.

While I’m not one who roots for disaster, the best thing that could happen for long-term stock market investors is a major price correction this year. Unless gross domestic product (GDP) is plunging or there is some sort of external shock to the system, it would make for an attractive new entry point.

Right now, there is a little momentum in U.S., Chinese, and German economic news, and this is giving an otherwise trendless stock market some hope. I call this market “trendless,” because I don’t like the trading action, and there seems to be a high amount of collective uncertainty. Investors aren’t piling into the stock market, because there’s no reason to with little earnings growth. Even though there’s no other asset class with the potential to beat the rate of inflation, there is little enthusiasm for stocks at their highs.

You can’t really ignore the stock market going forward, but you can attribute less attention to the main stock market indices. Good businesses are going to trade with less correlation … Read More

Things Are Looking Up! Let’s Hope They Don’t Wreck It

By for Profit Confidential

Let’s Hope They Don’t Wreck ItI’ve been looking at all the earnings to date (they often aren’t a calendar quarter, but a fiscal quarter), and so far, I would say that the majority of companies are beating consensus expectations. Corporate earnings are definitely managed, but this is a good development. If the reduced earnings outlooks in the third quarter are partly responsible for the “outperformance,” then the revenues figures are the real good news. It’s too early to tell whether this early trend will become a reality this fourth-quarter earnings season.

There was some good economic news last week, but the stock market didn’t really react to it. I suppose investors are content to sit on the sidelines until the earnings really roll in. There are a lot of stocks that aren’t performing that well in this market, and this is troublesome; but I have to admit, the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite are holding up well.

It’s a very good sign that the Dow Jones Transportation Index (or Average) has broken out of its long consolidation. Dow theory might be “old-school,” but I believe in it. FedEx Corporation (NYSE/FDX) is looking strong on the stock market, and so are Union Pacific Corporation (NYSE/UNP) and JB Hunt Transport Services, Inc. (NASDAQ/JBHT). The airlines, as a group, are still way down, but they recently saw a significant turnaround on the stock market. The one exception in this group is Alaska Air Group, Inc. (NYSE/ALK), which has been doing outstandingly well over the last few years.

So far this earnings season, I see a lot of potential. Looking at the numbers to … Read More

Earnings Season Is Here; Will the Numbers Be Kind?

By for Profit Confidential

Earnings SeasonThere is positive momentum going into fourth-quarter earnings season. The earnings results we’ve had so far from brand-name large-caps are encouraging. We can’t forget, however, that expectations and consensus estimates have come down a lot, especially because of third-quarter earnings results. I think the stock market will be pleasantly surprised when it gets results from the key financial and technology stocks. Outperformance should be plentiful, but only because of the reduced outlooks.

Oracle Corporation (NASDAQ/ORCL) reported great numbers in its latest earnings report. The stock is trading right at its 52-week high, and if you eliminate the huge upward spike in the company’s share price in 2000, its long-term stock market chart is excellent.

Oracle Corporation Chart

Chart courtesy of www.StockCharts.com

Oracle is a good barometer for enterprise technology spending. After its recent earnings report, across the board, Wall Street analysts increased their expectations for the coming quarters. The fact that Oracle recently reported such a good quarter bodes well for the rest of the technology sector.

Another big-name company, which experienced tough business conditions last quarter, is NIKE, Inc. (NYSE/NKE). The company’s most recent earnings report showed a marked improvement in its financial metrics, with particular strength coming from the U.S. market. NIKE is a good barometer on consumer spending, and the company’s long-term track record on the stock market is excellent. NIKE’s stock market chart is featured below:

NIKE Inc Chart

Chart courtesy of www.StockCharts.com

Still, no one is expecting runaway growth, in terms of earnings or revenues. And there is no bankable trend in the economy as of yet. Strength in fourth-quarter earnings could easily turn out to be a one-shot deal.

I’m … Read More

Stock Market: All the Cards Have Been Played

By for Profit Confidential

Stock Market: All the Cards Have Been PlayedOn the day of the Federal Reserve’s announcement regarding targeted low interest rates and a new bond-buying program, the stock market started out strong, only to sell off by the end of the day. This has happened countless times over the last couple of months, and it’s a sign that this market is tired. The stock market is finally seeing through the Federal Reserve, and investors now realize that no further policy action can do anything to help U.S. employment numbers.

This has got to be one of the most accommodative Federal Reserve’s in history. On Wall Street, you couldn’t really ask for a more compliant central banker, and the artificially low interest rates are very helpful for the bond market (by bond market, I mean the system itself, not investors). Corporations are benefiting from the Federal Reserve with lower borrowing costs, but they aren’t investing in new plant and equipment. Large-cap companies are awash in cash, and it’s a lot easier for them to keep hoarding it, or return it to shareholders in the form of dividends or share buybacks. (See “More Dividend Increases Coming Soon—Is This Good or Bad?”) A lot of participants are benefiting from the Federal Reserve’s action, except for the average individual who is looking for work.

One stock market index that just can’t seem to go anywhere these days is the Dow Jones Transportation Index (or average). This index basically hasn’t done anything for the last five years, and if you believe in Dow theory, the stock market will not advance materially without confirmation from transportation stocks. This index is stuck … Read More

Don’t Look at These Charts if You Expect Stocks to Rise

By for Profit Confidential

It wasn’t too long ago when the Dow Theory flashed a sell signal.

To reiterate, the Dow Theory simply states that in an uptrend, or downtrend, two popular stock indices must follow each other. For example, if the Dow Jones Transportation Index moves downward, the Dow Jones Industrial Average must follow in a similar direction for the overall trend to be considered down.

In these pages, on September 26, 2012, I wrote that the Dow Theory turned bearish (see “Dow Theory Flashes Sell Signal”).

This earnings season, we have witnessed disappointing earnings from large multinational companies.

To add to the misery, other Dow Jones Industrial Average companies, such as Caterpillar Inc. (NYSE/CAT), General Electric Company (NYSE/GE), McDonalds Corporation (NYSE/MCD), and International Business Machines Corporation (NYSE/IBM), are raising questions about future expectation.

International Business Machines (IBM) saw its revenue decreased in the third quarter, saying the government and businesses are very carefully watching their spending. (Source: The Wall Street Journal, October 29, 2012.) Caterpillar and General Electric (GE) are also warning of softening demand for their products.

But before the Dow Jones Industrial Average companies started warning about earnings, the Dow Jones Transportation Index had already tanked.

Below is the chart of the Dow Jones Transportation Index. The index hasn’t achieved a lot in 2012.

dow jones transportation average stock chart

Chart courtesy of www.StockCharts.com

On the other hand, the Dow Jones Industrial Average has had a banner year, until recently.

dow jones industrial average stock chart
Chart courtesy of www.StockCharts.com

What does this all mean? Are the trends changing and are the markets reversing? Yes, I believe this is exactly what is happening. We are seeing a huge reversal in the direction … Read More

Good News Is All in and the Sky Isn’t Falling…Yet

By for Profit Confidential

Good News Is All in and the Sky Isn’t FallingOne of my biggest concerns about the stock market in recent history has been the lack of confirmation from the Dow Jones Transportation Index. This index hasn’t done a thing in the last five years, and even though it has recovered somewhat since the beginning of October, it has been in a slow, but definable, downtrend since February. I can see why some technology stocks hit new highs this summer, and I can understand the stock market’s reasonable valuation given current earnings, but the lack of uptrend among transportation stocks is telling. We’re not in a bull market, that’s for sure—just a Federal Reserve-induced price recovery—a recovery that, to me, looks like it’s almost over.

I don’t want to be bearish about the stock market, but I’m certainly becoming less enthusiastic about the ability of large corporations to generate meaningful earnings growth going into 2013. I mean the writing is on the wall—so many blue chips are now coming up short on revenues, and you know that earnings are going to follow right behind. There is economic growth out there; some industries are doing better than others. But with the eurozone in no-growth mode and Japan in a similar state, seven-percent gross domestic product (GDP) growth from China isn’t enough to keep things going. Again, I repeat my view—don’t buy blue chips right now; they should be a lot cheaper early next year.

I’ve actually been amazed how well so many stocks have done over the last 12 months; and dividends have been going up. For the long-term stock market investor with established positions, your only friend over the next … Read More

Dow Theory Flashes Sell Signal

By for Profit Confidential

The Dow Jones Industrial Average has risen more than 11%. And if I had to choose one reason to explain the rise in the world’s most followed stock market index, it is this: extreme (and unprecedented) money printing by the Federal Reserve and the hope that other foreign central banks will also print money. These are what have pushed stocks higher.

If you are familiar with technical analysis, then you probably have heard of Dow Theory.

Dow Theory is sending a warning to stock market investors and warning of a possible trend reversal.

Dow Theory simply states that the stock market is in an uptrend when one of two major Dow Jones components (the Dow Jones Industrial Average and Dow Jones Transportation Index) breaks above a previous high at the same time or close to the same time. This is also true in a downtrend.

The Dow Jones Industrial Average, consisting of 30 major companies, is currently seeing a robust move to the upside for stock prices. On the other hand, the Dow Jones Transportation Index, consisting of 20 major transportation companies, has been struggling, actually decreasing in value.

The following is the chart of the Dow Jones Industrial Average and the Dow Jones Transportation Index over the last 200 days.

Chart courtesy of www.StockCharts.com

The Dow Jones Transportation Index and the Dow Jones Industrial Average were following each other very closely, a big positive under the Dow Theory. But near the beginning of July 2012, the averages started to go in opposite directions.

Since mid-September, these two main Dow Jones indices have been diverging. The Dow Jones Industrial … Read More

Is the Stock Market Where It Should Be After QE3?

By for Profit Confidential

business arrow diagramOn a lot of occasions, the stock market sells off on the reality of its expectations, but it hasn’t since the Federal Reserve announced a third round of quantitative easing (QE3). The main stock market indices are holding up very well, consolidating more so than selling off on the news. Stock market sentiment continues to be relatively positive, with some hope for the economic future and the expectation that third-quarter earnings season won’t be terrible.

There’s still a lot to be said for the stock market’s reasonable valuation, given the earnings picture. With fairly priced stocks, a lot of which are trading close to their 52-week or all-time highs, there’s always room for a little more expansion in price and less contraction on the downside. A stock market that isn’t expensively priced gives the marketplace a lot more leeway for changes.

Some benchmark stocks that I follow on a continual basis are holding up extremely well, leading me to expect further upside ahead until we get into the heart of third-quarter earnings season. Union Pacific Corporation (NYSE/UNP) is an important component of the Dow Jones Transportation Index, and this stock is trading right at its all-time high, still with a current dividend yield of 1.9%. (See “The Top Stocks Making Money in This Market Right Now.”)

Take a look at Union Pacific’s stock chart:

Union Pacific Corp NYSC + BATS Stock Chart

Chart courtesy of www.StockCharts.com

On the comeback trail is industry benchmark General Electric Company (NYSE/GE), which was hit very hard during the financial crisis in 2008/2009. The stock is about halfway through its recovery to its pre-financial crisis level, lagging most of the stock … Read More

Will the Stock Market Tank on Earnings Warnings?

By for Profit Confidential

Earnings WarningsI don’t think the upcoming earnings season is going to be a bad one, but when FedEx Corporation (NYSE/FDX) says that the global economy is worsening, I pay attention. For its fiscal year, ended in May, the company lowered guidance for its earnings per share (EPS) range to $6.20–$6.60, down from the previous forecast of $6.90–$7.40 per share. FedEx is a member of the Dow Jones Transportation Index.

The company’s recent quarterly earnings beat the Street, but it guided its fiscal second-quarter earnings below consensus and lowered its earnings guidance for all of fiscal 2013 to below consensus. FedEx has been flat on the stock market all year, similar to the Dow Jones Transportation Index, as can be seen in the company’s stock chart below.

FedEx Corp Stock Chart

Chart courtesy of www.StockCharts.com

We know that the stock market has been going up in anticipation of new monetary stimulus from the Federal Reserve, but I repeat my view that the stock market is ahead of current economic fundamentals. For the U.S., eurozone, and Chinese economies, 2013 is likely to be a very difficult year. I think it’s likely that the U.S. economy will experience another recession before a new business cycle begins in 2014/2015.

Intel Corporation (NASDAQ/INTC) is another big-name company that recently lowered its third-quarter earnings forecast. Citing weakness in the eurozone and toughening domestic competition as the reasons, Intel’s share plummeted on the stock market. (See “Stock Market Action Just Temporary—the Party Will Soon Be Over.”)

Intel Corp Stock Chart

Chart courtesy of www.StockCharts.com

Another company that recently reported bad earnings was Titan Machinery Inc. (NASDAQ/TITN), a previous stock market darling. This company runs … Read More

Dow Jones Industrials Shine as Market Awaits FOMC

By for Profit Confidential

Dow Jones Industrials Shine as Market Awaits FOMCEven though the Dow Jones Industrials just hit their best level since 2007, the Dow Jones Transportation Index began to appreciate with the other major indices only in the last week—and this is with buoyant oil prices. It all leads me to believe that the stock market is technically overbought and almost a little ahead of economic fundamentals. (See “Stock Market Investor Sentiment Drops Again…Why?”)

However, I can’t argue with the momentum in the Dow Jones Industrials. Institutional investors continue to snap up dividend paying blue chips with fervor. There are two things the stock market needs for this mini bull market to continue until the end of the year: one, large-cap technology benchmark stocks must not break down; and two, the Dow Jones Transportation Index has to make up some lost ground. The risk of a stock market correction rises significantly if any of these two factors don’t occur.

With the Federal Open Market Committee (FOMC) meeting upon us, anything could happen with the stock market. We’ve seen the Dow Jones Industrials, the NASDAQ Composite, and the S&P 500 Index move strongly higher in anticipation of new stimulus from the FOMC; and most often, the stock market sells on the news. But things are a little wacky this year, and even though I think the stock market is in the process of topping out, a third round of quantitative easing (QE3) could send shares soaring anyway. It’s all because the stock market isn’t expensively priced and investors have no other place to put their money to beat the rate of inflation. Dividends are the only game in … Read More

Stock Market on the Verge of a New Trend

By for Profit Confidential

Stock Market on the Verge of a New TrendThe stock market is on the third leg of a repeating pattern that began about three years ago. The spectacular stock market decline that began in 2008 hit a bottom in March 2009, and then promptly recovered. July 2009 saw a significant recovery in share prices, followed by a rising trend that lasted until April 2010. The pattern then repeated itself the next year and looks to be in the process of repeating a third time.

This stock market action is evident in all the major indices, including the S&P 500 Index, the NASDAQ Composite, and the Dow Jones Industrials. In the 2009 and 2010 price trend, the Dow Jones Transportation Index led the Dow Jones Industrials. Its performance over the Dow Jones Industrials was more pronounced then. But not anymore; the Dow Jones Transportation Index is losing its leadership trend and this, combined with generally low trading volume, leads me to suspect that the stock market is in the process of topping out.

When will the top happen? That’s total guesswork and unanswerable. But there’s a lot of change coming in the world, both politically and financially. Sovereign debt in most of the world’s mature economies (including the U.S.) will have to be addressed in 2013. With higher interest rates, capital markets have already begun to force these economies to address their debt. And the coming austerity measures will put the brakes on growth, because for the most part, government spending is a big part of economic activity.

With this fundamental backdrop, it makes a difficult case for being bullish on the stock market, and perhaps this is … Read More

Dow Jones Transportation Index Still Diverging From Broader Market; What It Means

By for Profit Confidential

Dow Jones Transportation Index Still DivergingTrading volume on the stock market is lethargic, even for the traditionally slow summertime period. All eyes will be on Ben Bernanke this Friday, and the main stock market indices won’t move much until then. (See “Broader Market to Consolidate—No More Upside Without the Fed.”)

The significant divergence that has built up between the S&P 500 Index and the Dow Jones Transportation Index remains, and to me, it represents non-confirmation of the stock market’s most recent rally. Naturally, the divergence is most pronounced between the NASDAQ and the Dow Jones Transportation Index, followed by the S&P 500 Index and the Dow Jones Industrials. It became apparent mid-July, when oil prices recovered from their recent correction. But I think the divergence is due to more than just higher oil prices; I think it’s emblematic of a stock market that’s losing its momentum.

Already this year, the Dow Jones Industrials, the S&P 500 Index, and the NASDAQ Composite are up substantially, and this doesn’t include dividends. Average trading volume for the Dow Jones Industrial Average has been declining over the last several years; the performance of this index has repeated itself three times since its low in March of 2009. I get a real sense among stock market investors that things are coming to a head on the economy, Wall Street, and the political landscape. It’s a very tough environment in which to make predictions about the stock market. There are just too many unknowns out there, and that’s why so many dividend paying stocks, like those in the Dow Jones Industrials, have done well this year. All the … Read More

Dow Jones Industrials Looking Good, But Transportation Leadership Has Vanished

By for Profit Confidential

Dow Jones Industrials Looking GoodStock market breadth isn’t that strong, and what’s worrisome from my perspective is the non-confirmation from the Dow Jones Transportation Index. One stock market leader that I always follow is Union Pacific Corporation (NYSE/UNP), which is a railroad stock that just hit an all-time record high on the stock market of $126.91 per share. This is one component of the Dow Jones Transportation Index that’s doing great, but a lot of companies within the index haven’t participated in the recent rally, and it’s a real divergence.

Of course, oil prices reversed their earlier trend and recovered significantly from below $85.00 a barrel. Certainly, this would be a drag on the index. But the Dow Jones Transportation Index has mostly led the Dow Jones Industrials and the S&P 500 Index since the stock market low in March of 2009, so the divergence is a red flag as far as I’m concerned.

A lot of institutional investors are not behind the recent stock market breakout, citing less than inspiring economic fundamentals and a mediocre technical picture. But for all the analysts now calling for investors to sell their equities, the stock market remains fairly priced, given the earnings outlook. Fundamentally, there’s nothing wrong with the Dow Jones and the other benchmark indices at their current levels.

Stocks that have been breaking down in the Dow Jones Transportation Index include J.B. Hunt Transport Services, Inc. (NASDAQ/JBHT), United Parcel Service, Inc. (NYSE/UPS), and Landstar System, Inc. (NASDAQ/LSTR) to name a few. (See “Why Getting the Business Cycle Right Is the Only Thing That Pays.”) It very well could be the oil … Read More

Today’s Technical Analysis: Chart Congestion in Place

By for Profit Confidential

Today’s Technical AnalysisWhile January was one of the best months for stocks, the moves in April did some stalling, which shouldn’t be a surprise given the rapid move and the reality that the rate of gains cannot be maintained without periodic market adjustments.

My technical analysis is that stocks in an uptrend go through periods of ups and downs, which is normal and healthy as long as the subsequent highs and lows are higher on each upward wave.

You also need buying conviction on the buy side, which helps to provide the underlying strength. The continued lack of trading volume indicates apprehension.

Small-cap stocks have been impacted the most with a decline of 1.69% in April based on the close of Monday. The Russell 2000 has lost some steam after a strong start to the year and is hovering at its key 50-day moving average (MA) of 817, but threatening to break lower. My technical analysis shows possible near-term topping at above 800 and a subsequent decline to below its 20-day and 50-day MAs. The index is sitting precariously at the 50-day MA and failure to hold could see a drop to 750.

The Russell 2000 Chart

Chart courtesy of www.StockCharts.com

The chart resistance has been tough to break based on my technical analysis. The Dow Jones Industrial is hovering above 13,000, but is not on firm legs just above its 50-day MA of 13,042. The chart continues to show the overextension and the need for a market adjustment, which may be inevitable based on my technical analysis.

 The Dow Jones Industrial Chart

Chart courtesy of www.StockCharts.com

But what makes me nervous is the failure of the Dow Jones Transportation … Read More

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