By Jud Pyle, CFA, chief investment strategist for the Options News NetworkShares of the railroad companies are down more than the market so far today. Norfolk Southern ( NSC) has fallen more than 8%, Kansas City Southern ( KSU) more than 9% and Union Pacific ( UNP) more than 9% compared to the S&P 500, which was down just 3.6 % in the first five hours of trading. With the slides in the stocks, we are seeing option activity that suggests more downside slides could be in the offing.
The only thing that could save the rails in 2009 is pricing power, which they've been able to enact over the past few years, partially due to lagged fuel surcharges, also due to decreased government regulation and rails claiming better efficiency and service. However, a few weeks ago, the Surface Transportation Board ruled against Burlington Northern ( BNI) in a captive shipper rate case and it was a negative on the entire space. This morning, the Railroad Antitrust Enforcement Act of 2009 passed the Senate Judiciary committee by a vote of 14-0. No guarantee that this bill passes, but if it does, it could have the effect of making it easier for shippers to sue railroads under antitrust law in the future, not good for pricing. Many market participants have believed in the past that the Dow Transportation Index is the leading indicator for the rest of the market. Given the 6% slide in the index today and these trades betting on still more declines, which could be a less than positive sign for this already ailing market. Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.