Southwest Air, Con-Way, United Continental Lead Dow Transports to Teetering Highs

NEW YORK (TheStreet) -- There are 20 components in the Dow Jones Industrial Average (DIA) , but only five were the primary drivers that led this average to an all-time intraday high at 8537.80 set on Wednesday. Dow Transports has a year-to-date gain of 15% vs. 10% for Nasdaq (QQQ) , 8.2% for the S&P 500, just 3% for Dow Industrials and a meager 0.7% for the Russell 2000 (IWM) .

When I wrote "What Could Happen to Major Stock Indices When a Correction Comes" on Tuesday, I advised investors and traders to focus on my first "crunching the numbers" table in that post. It was a good idea.

This benchmark table shows that Transports were last to peak before the crash of 2008. With transports now at 8,496.93, keep in mind that the May 2008 high was just 5,537 -- with the March 2009 low at 2,134. (These are not misprints.)

In my opinion, Transports cannot sustain a 300% gain from the March 2009 low.

Let's take a look at the weekly chart for Dow Transports.

Courtesy of MetaStock Xenith

The weekly chart for Dow Transports is positive, with the five-week modified moving average at 8,318 with rising 12x3x3 weekly slow stochastics. The 200-week simple moving average at 5,916 represents the long-term reversion to the mean. Transports are above semiannual and monthly pivots at 8,447 and 8,410, which is a sign that Transports are an inflating parabolic bubble.

Now let's look at the profiles for the five momentum transportation stocks that led Transports to new highs. Two "crunching the numbers" tables follow.

Con-Way  (CNW) ($52.76) is up 33% year to date and set a multiyear intraday high at $52.87 on Sept. 3. The weekly chart is positive but overbought, with its five-week modified moving average at $50.39. A semiannual value level is $46.47, with a monthly pivot at $50.67 and no risky levels. A trucking company with this pattern is clearly an inflating bubble.

Southwest Air   (LUV) ($32.58) is up 73% year to date, and set an all-time intraday high at $32.92 on Sept. 2. The weekly chart is positive but overbought, with its five-week MMA at $30.11. A quarterly value level is $25.64, with a monthly risky level at $33.88.

Ryder Systems  (R) ($92.88) is up 26% year to date, and set an all-time intraday high at $93.85 on Sept. 3. The weekly chart is positive, with its five-week MMA at $89.31. Semiannual value levels are $84.23 and $72.39, with monthly and quarterly risky levels at $93.29 and $97.16, respectively.

United Continental  (UAL) ($49.03) is up 30% year to date, and set an all-time intraday high at $50.00 on Sept. 2. The weekly chart is positive, with its five-week MMA at $46.46. Quarterly and semiannual value levels are $45.64 and $42.75, respectively, with a monthly risky level at $53.29.

Union Pacific  (UNP) ($106.60) is up 27% year to date, and set an all-time intraday high at $107.38 on Sept. 3. The weekly chart is positive, with its five-week MMA at $102.88. Quarterly and semiannual value levels are $102.34 and $93.61, respectively, with a semiannual pivot at $106.04 and monthly risky level at $110.85.

Up next: charts on when to buy and sell these stocks.

Crunching the Numbers with Richard Suttmeier: Moving Averages & Stochastics

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: (stocks below a moving average listed in Red are below that moving average)

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three- to five-year horizon.

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six- to 12-month horizon.

Crunching the Numbers with Richard Suttmeier: Where to Buy & Sell

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

At the time of publication, the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

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


TheStreet Ratings team rates SOUTHWEST AIRLINES as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins."

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