Sectors tied to the 2010 economic outlook have been dumped like hot potatoes in the last week as market players jump ship in response to Chinese monetary tightening, political shenanigans and Bernanke nonconfirmation rumors. Although the fears of slower growth underlying this decline might not be justified, the
is still translating into lower equity prices.
The transportation stocks have been hit especially hard -- the Dow Jones Transportation Average has fallen more than 6% in the last two weeks. The engines of industry that make up this broad sector are pointed south right now, except for the airline stocks, which are moving to the beat of their own drummer.
The destruction has been especially severe in the railroad subsector, which had been firing on all cylinders in the last few months. Just take a look at
, a transportation leader that posted a 15-month high a week before its poorly received earnings report triggered a huge slide, dropping the stock into the low $40s.
Fortunately, there's a ray of sunshine after this ugly decline. Price has now dropped down to a rising channel line and support at the 200-day moving average. This is a perfect place for the stock to make its stand ahead of a bounce that fills the gap between $48 and $50. That turnaround might offer a profitable "dip" entry for swing traders.
are holding up better than CSX, suggesting a portion of the decline is company-specific. However, expect the entire group to face selling pressure as long as energy prices continue to deflate and investors believe the economic glass is now half-empty rather than half-full.
Package carriers felt the pressure when
gapped down from a 52-week high in December after issuing downside guidance for 2010. However,
United Parcel Service
has bucked the tide, holding up well in January and then gapping higher after the company did the opposite of FedEx and raised its outlook.
The rally in UPS carried to $63.38 before the stock topped out and rolled over with the broad market last week. The subsequent decline has now filled the big breakout gap and dropped into the 50-day moving average. This is a natural spot for a recovery effort and a resumption of the company's strong uptrend.
The package carriers' two-sided performance adds considerable confusion to the mix, because it's sending conflicting signals about the current state of the economy. In a way, the inconsistency makes sense because broad economic data is reporting expansion but offering little hope that growth will increase in the months ahead.
Airline carriers are bucking the downward tide in the transportation sector, which isn't surprising given its inverse relationship with crude oil prices. Also, consider that this market group had already lost considerable ground before the world markets crashed in 2008. Perhaps the time for these issues to outshine other market groups has finally come.
Delta Air Lines
because it's the only major carrier that's cleared September 2008 resistance. The stock just survived Tuesday morning's earnings release with minimal damage. Look for the uptrend to reassert itself in a steady move that could reach into the upper teens before year-end.
This is a relatively small sector in which opportunities are generally stock-specific.
( UAUA) is another good choice for longer-term players, while I would avoid
. The regional airline carriers have also carved out a variety of bullish chart patterns, with
Alaska Air Group
showing the most potential upside.
Trucking and shipping companies round out the transportation sector, joined at the hip to local and worldwide industrial demand. Neither group has been a solid performer in recent months, but at least the shippers have been showing signs of life that could presage a more sustained recovery later this year and into 2011.
sold off from $88 to $24 during the bear market and bounced into June of last year. It filled out a broad basing pattern through the rest of 2009 and broke out earlier this month. Unfortunately, the stock failed the breakout in last week's selloff and could drop to the blue line at $41 before starting a notable recovery.
The trucking industry is a wasteland for investors right now, with the best plays setting up on the short side. A breakdown through $30 on
JB Hunt Transport
or $55 on
CH Robinson Worldwide
should yield reliable sell signals for continued declines that might continue for another three to six months at a minimum.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in
. He has written two books:
, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
Farley appreciates your feedback;
to send him an email.
click here to sign up for Farley's premium subscription product, The Daily Swing Trade, brought to you exclusively by TheStreet.com.
TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.