Transports Shift Gears to a Market Leadership Role

NEW YORK ( TheStreet) -- The Dow Jones Transportation Average has been the weakest so far this year among the five major averages I follow.

Transports began the week up only 1.4% year to date compared to the Dow Jones Industrial Average, which was up 4.5%; the S&P 500, which was up 6.8%; the Nasdaq, which was up 10.3%; and the Russell 2000, which was up 4.1%.

The major equity averages closed Monday straddling their 50-day simple moving averages, but only the Dow transports closed above its 50-day, at 5128.

With a gain of 100 points on the day, the transports jumped to a 3.4% year-to-date gain. The Dow Jones Transportation Average is up 31.4% since its Oct. 4, 2011 low and is only 7.7% below its July 11, 2011 all-time high at 5627.85.

The daily chart for Dow Transports shows rising momentum (12x3x3 daily slow stochastic) reading at 69.25 on a scale of 00.00 to 100.00, where a reading below 20.00 is oversold and above 100.00 is overbought.

As the chart below shows, transports moved above its 50-day at 5128 on Monday, and is also above its 21-day and 200-day simple moving averages at 5022 and 4983, respectively.

Daily and weekly value levels are 5126 and 4931 with a quarterly risky level at 5420, and the all-time high at 5627.85. I do not expect Transports to return to that all-time high this year.

Chart Courtesy of Thomson/Reuters

Fundamentally, the transportation sector is 6.1% undervalued according to ValuEngine, and in screening the components of the Dow Transportation Average, I found 10 stocks with buy ratings. Of these, I will profile seven that should be considered "buy and trade" candidates. It seems that lower fuel costs are helping transportation stocks lead a recovery.

CH Robinson Worldwide ( CHRW) is barely a buy-rated stock as the forecast one-year return is just 5.1%, as the stock would be rated a hold (3-Engine Stock in the table above) with this projection below 5.0%. The stock set a 52-week low at $55.88 on June 5. The upside for a short-term "buy and trade" strategy is to my monthly risky level at $61.41 vs. the one-year price target at $62.02.

CSX Corp ( CSX) held my semiannual value level at $20.40 on June 4 and closed above my semiannual pivot at $22.31 Monday. My monthly risky level at $24.55 is an exit price for a "buy and trade" strategy.

FedEx Corp ( FDX) held its 200-day simple moving average at $84.55 on June 5 and closed above its 50-day at $87.98 Monday. My quarterly value level is $78.18 with my monthly risky level at $107.52.

JB Hunt Transports ( JBHT) is the only stock in the table above that is overvalued (by 16.9%), but this buy-rated stock hit another all-time high at $60.77 Monday. When you look at the stock's monthly chart you worry about a parabolic bubble, which is rare for a boring trucking stock. When you buy a stock with this kind of profile you should consider employing a "sell stop" to limit losses. There's a wide range between my quarterly value level at $78.18 and my monthly risky level at $65.95.

Kansas City Southern ( KSU) held my annual value level at $61.62 on June 4 by setting a new year-to-date low at $61.36. The stock closed Monday above its 50-day simple moving average at $70.44. My quarterly risky level is $74.22, where "buy and trade" gains should be taken.

Norfolk Southern ( NSC) closed Monday above both its 50-day and 200-day simple moving averages at $68.37 and $69.69, respectively, after setting a year-to-date low at $62.82 on June 4. My semiannual value level is $61.63 with a semiannual pivot at $68.74 and quarterly risky level at $74.14.

United Parcel Service ( UPS) is the only strong buy (5-Engine Stock in the table above), as this stock is projected to gain 13.2% (a 5-Engine stock is projected to gain 12% or more) over the next year. This stock traded to a year-to-date low at $72.15 on June 5 and closed Monday above its 50-day simple moving average at $77.02. My annual value level is $67.19 with quarterly and annual pivots at $78.08 and $78.96, respectively, and a monthly risky level at $87.20.

To learn more about ValuEngine, go to www.ValuEngine.com and sign up.

I do not own any of the stocks shown in the table above and have no other conflicts.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.