Transports in Trouble: Too Much Resistance
Monday recap: Equity markets started the week with an ebullient tone as the DJIA, S&P 500 and NASDAQ all sprinted through big number resistance levels of 18,000, 2100 and 5000 respectively. The party didn’t last very long, An hour into trading, market averages had seen their high water marks for the day.
Many trading game plans went out the window at this moment. It was time to manage ris again instead of adding to positions.
By midday, most gains had evaporated with investors and traders “rooting for a split decision” as the Russell 2000 and NASDAQ were still in the green. NASDAQ -0.15% at 4988.25 was trying to post a close above the 5000 milestone for 6th time ever with help of recent leadership from the Biotech, IBB +0.25% at 358.32 and Social Media, SOCL ~0.0% at 20.41.
The Industrials and Transports were the first areas to show significant weakness as the DJIA -0.45% at 17.977 and DJ Transports -0.7% at 8706.63 had both turned negative by 1:30 PM.
The weakness in the Transports is particularly troublesome as stiff selling in both the Rails and Airlines were main culprits in halting the market’s rally at the end of 1Q.
Despite rallying 4 days in a row off the April 6 low of 8565, the Transports recouped only a third of their losses from the preceding 10 days. Monday, they couldn’t hold the crucial 8800 level after trading higher an hour into the day.
Even though the S&P 500 is trading within 3 percent of an all-time high, there may be some troubling signs within the market. The Dow Jones Transportation Average is now 6 percent off its all-time high set in November 2014, and it has struggled to break through the old high during the rallies.
No Doubt the Transports will start Tuesday’s trading below their 200 day MA of 8680, as after the close we had our first major 1Q profits warning, as Norfolk Southern; NSC, said they expect to earn +$1.00 per share vs. analyst estimates of +$1.25. NSC was -5% in after hours trading, with CSX -3% in sympathy.
Declining oil and coal shipments will play a big part when CSX (CSX) announces first-quarter earnings after the market close Tuesday, the first big railroad to report. Consensus is for the Jacksonville, Fla.-based company to report 45 cents in earnings per share for Q1, up 13% from a year ago, on a 1.2% uptick in revenue to $3.05 billion. Investors will look to see whether the company tops EPS estimates after it just met views last quarter, ending
CNBC Fast Money’s Pete Najarian spoke on the show about unusually high options activity in CSX Corporation (NYSE: CSX).
CSX reports 1Q earnings Tonite!! after the close, while NSC will not report 1Q earnings until April 29.
Today we’ll get 1Q earnings pre opening from JPM and WFC possibly setting the bar for other major Banks and Financials later this week. JNJ also reports pre opening, while INTC and CSX report after the close. INTC comments, as always, will be closely parsed for trends affecting cap ex spending in the chip space, particularly given their recent “pass” on a high profile acquisition opportunity.
CSX will no doubt be “on the spot” to confirm or refute influencers cited just last night by NSC in their warning of a 1Q profits shortfall. Barring an unlikely rally in the space today the DJ Transports are in big trouble technically, again below their 200 day MA, with the 8500 -8550 major support level looming.
The Market needs help from some established big cap leadership to compliment the niche sex appeal of emerging Biotech and Social Media that have investors captivated with potential but lack the float to satisfy their appetite.
Tim Anderson Managing Director TJM Investments, LLC
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