Get Out of Shipping and Trucking Stocks

I have downgraded the trend rating of the entire market to sidelines. Energy stocks are coming on strong and putting major downward pressure on Shipping and Trucking stocks. What a turn of events!

In just the last few days, the uptrend in energy has crashed Shipping and Trucking stocks.

Knight (KNX) is down -5.8% from our entry. Shipping stock Matson (MATX) crashed -5.4% below our entry. Teekay Tankers (TNK) is down just -2.6% from our entry. Finally, trucking stock Celadon (CGI) is down -6.5% from our entry. Let’s sell all these positions for a loss.

Folks, -6% losses are not the end of the world. Book your losses while they are small. You can always enter back into these stocks at another time. What you don’t want to do is stay in a losing position too long at the start of the worst 6 months of the year (May – Oct). A -6% loss can quickly come a -10% loss. Remember, cut your losers short, and let your winners ride, not the opposite.

Transportation Index Fund (IYT)

Most Transportation stocks have broken below their 200 day moving average today.

IYT has not only closed below its 200 day moving average today, but it has a bearish Parabolic Sar sell signal.

Disclosure: I do not hold any position in any stock mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Consumer Spending Forms V Pattern

The consumer spending (nominal) component of the Personal Income & Outlays report released today shows a classic ‘V’ continuation pattern.

March consumer spending rebounded 0.4 percent (and was up 3.0 percent from a year ago) from a revised increase of 0.2 percent in February. Yeah, the perma-Bears like Peter Schiff got smoked on the upward revision in February to 0.2 percent. That was a big upward revision from 0.1 percent. That means consumer spending rose double in February from what was originally reported at the end of March.

Check out the textbook ‘V’ continuation pattern in consumer spending:

The big resistance level to watch now is at 0.4 percent. My money is on the Federal Reserve being right about the U.S. economy picking up in Q2 and Q3 and so we should get a break above the 0.4 percent resistance level over the coming months. Who knows, if the revised March number is anything like what happened with February being revised up to 0.2 percent, we could have already broken through this level.

Consumer spending generates more than two thirds of GDP and is a key driver of growth.

Jobless Claims Break Support Hit 15 Year Low!

I usually do not write an article about the volatile weekly jobless claims report but folks, a major chart support was broke with today’s report.

New claims for state unemployment benefits fell 34,000 to a seasonally adjusted 262,000 for the week ended April 25, 2015, the lowest reading since April 2000! The number of Americans filing new claims for jobless benefits tumbled to a 15-year low.

Jobless claims has been in a sideways trading channel for all of 2015. Today’s plunge broke below support and continues the strong downtrend that began in January 2014.

I created the interactive infographic below that shows jobless claims in 2015. Hover your mouse over the line to see the specific data.

The major 267K support that has held for all of 2015 has been broke. More conservative traders may want to wait a couple more weeks to get confirmation of the break.

Energy Stocks Reverse, Time To Go Long

After months of patiently waiting and watching other traders jump into energy stocks too early, I think it’s finally time to go long the energy sector.

Boone Pickens thinks the energy sector is going to have a rebound, and it is coming sooner than the market thinks.Source:

There are three catalysts that could power energy stocks higher: the ECB QE is starting to work, the U.S. economy may just improve in the second half of 2015 like the Federal Reserve has been predicting, and the number of rigs taken offline in the U.S. is starting to improve the supply/demand ratio.

When playing the reversal of an entire sector, it’s often better to play an ETF. The reason is that there’s safety in size. Old leaders can fall by the wayside as a new, leaner sector emerges from the ashes. Until new sector leaders emerge, an ETF is a safer way to play a reversal in energy stocks in my opinion.

Energy Stocks Chart XLE

The chart of XLE is why I think it’s finally time to go long energy stocks and the energy sector.

A dirty Head & Shoulders bottom has been put in. The break of the right shoulder above the neckline is confirmed by the break above the 200 day moving average, and a Parabolic SAR buy signal on April 29, 2015. Ask yourself, how much more of a reversal signal are you going to demand before going long energy stocks?

One of the things I really like about a P&F chart is that it’s superior to a candlestick in terms of spotting trend reversals. Check out the P&F chart on XLE:

You can see a break above the downtrend channel line just took place over $81 when XLE closed the Head & Shoulders Bottom by breaking above neckline resistance at $81 (see candlestick chart above). The trend reversal was confirmed with an Ascending Triangle Breakout on the P&F chart. To review, an Ascending Triangle Breakout is a 5 column pattern with 3 X-columns, and 2 O-columns. Each X-column breaks above the previous one. The idea is that demand is continuing to outstrip supply on an ongoing basis.

Global Energy Stocks Sector Index Fund IXC

IXC has been slightly outperforming XLE since April 13, 2015. Check out the performance chart below:

Since April 13, 2015, XLE is up +4.5% while IXC is up +5.2%. IXC has positions in energy companies around the world but it still holds about 60% of its assets in U.S. energy stocks. It is broken down between oil integrated (50), E&P stocks (20%), equipment/services (10%), pipelines (10%) and then refining and drilling make up the rest.

The P&F chart of IXC looks absolutely awesome with a Triple Top Breakout on April 23, 2015.

The Triple Top Breakout suggests that a break above the downtrend line at $41 is likely.

Disclosure: I do not hold any position in any stock mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

FOMC Announcement Keeps “Transitory” Language

The FOMC Announcement released today shows that the Federal Reserve continues to view the currently slowdown in the U.S. economy as nothing more than a “transitory” phase.

Overall I think it is a dovish statement. It acknowledges weakness in Q1 and it didn’t offset that with positives, other than to say weakness is transitory. It gives no clues about the timing of a first rate hike.Source:

We need to watch the GDPNow forecast for the Q2 2015 GDP estimate. If we see a massive turn around in Q2 2015 GDP estimates, I think we get a rate hike by September 2015 at the latest. Bar some spectacular turnaround, I think we can say rate hikes for June are off the table after the FOMC Announcement today.

FOMC Announcement Shows Small Downgrade Of US Economy

The Fed’s language changed to be slightly more bearish on the economy than they were at the March meeting. Household spending was changed from “rising moderately” to “declining”. Business investment was changed from “advancing” to “softening”. Exports changed from “weakening” to “declining”. Labor conditions were changed from “improving” to “moderating”.

Below is a word cloud of today’s FOMC Announcement (click on the image below to enlarge):

Matson Stock Price In Strong Uptrend

Matson (MATX) operates as an ocean freight carrier in the Pacific. The company provides ocean transportation services to the island economies of Hawaii, Guam, and Micronesia, as well as operates an expedited service from China to Long Beach, California; and provides ocean services to various islands in the South Pacific, including New Zealand, Fiji, Samoa, American Samoa, Tonga, the Cook Islands, Australia, the Solomon Islands, and Nauru. It operates a fleet of 18 owned and 3 chartered vessels, including 11 containerships, 3 combination container/roll-on/roll-off ships, 1 roll-on/roll-off barge, and 3 container barges equipped with cranes.

Traders continue to expect big things out of Matson as evidenced by the P/E of 26.29 and the high PEG of 4.35. They have not been disappointed. The quarterly EPS growth year over year is a stunning 276.5%. What is really shocking though is the EPS forecast hikes. About 60 days ago, the EPS forecast was $0.32. About 30 days ago, that was raised to $0.55. That’s an incredible +71.8% increase in the EPS forecast! Many shipping companies have seen big EPS forecast hikes.

Matson has grown its revenue nicely since 2010. The company’s five year annual revenue growth rate is a respectable 4.3%. Revenue has formed a classic staircase higher. While the revenue is not as explosive as some of the stocks I have profiled recently, it shows management is slowly growing revenue. Such stability in revenue growth often attracts institutional investors. In fact, institutional investors hold 83.4% of the stock. Such high institutional ownership usually keeps short sellers out, and that is the case with Matson stock with just 2% of the float short.

Factors driving revenue growth for Matson are:

  • A major shipping route for Matson is Hawaii. Hawaii’s economy is in a multi-year recovery and is anticipating modest market growth in 2015.
  • Cargo availability delays experienced by other ocean carriers associated with port congestion on the U.S. West Coast, are benefiting Matson. Matson offers “expedited transpacific service” between China where they charge higher rates to get around cargo availability delays. China is paying for this expedited service. During Q4 2014, the company realized significantly higher freight rates in its China trade. Strong demand for its expedited service is expected to continue in 2015 resulting in high vessel utilization levels and premium freight rates.
  • Another major shipping route for Matson is Guam. In Guam, the company’s container volume increased modestly in Q4 2014 due to general market growth. In 2015, the Guam economy is expected to grow even more, resulting in higher container volume compared to 2014.

Matson Stock Chart

Matson stock trades in the Shipping and Ports industry. If you believe that QE and central bank action around the world is going to revive the global economy, there is no better industry to play than Shipping and Ports in my opinion.

Folks, that’s a classic reversal pattern. After a chop out consolidation pattern along the bottom, the industry chart is up +13% from its March 16, 2015 low. If we can time the turn in the Shipping and Ports industry right, we are going to make a lot of money as the industry chart rises +30% back to test its 3,215 level. If we are wrong about the turn, we have a nice support bottom in place with a -15% stop loss around 2,130. I like that risk/reward ratio.

I usually don’t chart a stock going 2 years but I think we need to for Matson. If you look at a daily chart, Matson seems sky high as it’s been in a strong uptrend for many months now; however, using a weekly chart and going back further, you can a better perspective. Matson stock just did a Triple Top Breakout after a prolonged consolidation period that lasted from July 2013 to November 2014. That’s a long time for a stock to consolidate and basically go no where. That’s a long term energy field that had a long time to coil up. That coil just released itself in November of last year. Matson could be a $55 stock on an improving global economy over the next couple of years.

The P&F chart on Matson shows an Ascending Triple Top Breakout:

An Ascending Triple Top Breakout on a P&F chart is characterized by 5 columns. Of those 5 columns, three are X-Columns that ascend with each breakout, and the other two O-Columns are in-between the X-Columns.

Notice the P&F volume chart below that shows the buy side volume is climbing nicely as each previous top has been broke. Also, when the buy side volume flushes on a large spike, the stock pulls back. We have yet to have such a big buy side volume spike.

Disclosure: I do not hold any position in any stock mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

South Korea GDP Beats and How To Play

The Bank of Korea reported last week that the GDP of South Korea rose 0.8% in Q1 2015. This is an acceleration of growth from Q4 2014 when GDP rose 0.3%. The GDP of 0.8% for Q1, beat estimates which called for 0.6% growth.

In a recent analysis, analysts at Moody’s forecast that South Korea’s GDP per capita is set to rise to $46,980 in PPP terms by 2020, putting it above France’s forecasted GDP per capita of $45,887.Source:

South Korea is a highly export-driven and industrialized economy. South Korea’s biggest exports are: electronics, automobiles, machinery, petrochemicals, ships, and robotics.

An excellent way to play South Korea’s growing GDP is in the iShares MSCI South Korea Capped ETF (EWY).

EWY is broken down with a current sector weighting of: Tech (34%), Consumer Discretionary (16%), and Financials (14.7%).

South Korea ETF EWY vs S&P 500 Chart

As the Federal Reserve gets ready to embark on a path of rate hikes which will no doubt slow down U.S. economic activity, South Korea’s rate of growth is picking up, and as such, so is the South Korea ETF EWY.

So far in 2015, the S&P 500 is up +1.96%. The South Korea ETF (EWY) is up a whopping 12.9% over that same time frame. In other words, the South Korea ETF (EWY) has outperformed the S&P 500 by +600% so far in 2015!

South Korea ETF EWY Chart

The chart of EWY looks like a classic turnaround pattern. EWY broke out of its Rectangle Bottom in mid-March. EWY broke above the 200 day moving average in April. The 50 day moving average is quickly closing in on the 200 day moving average for a Resurrection Cross.

Disclosure: I do not hold any position in any stock mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Knight Transportation Stock EPS Forecast Just Raised

Knight Transportation (KNX) operates as a short-to-medium haul truckload carrier. It operates through two segments, Trucking and Logistics. The Trucking segment offers truckload carrier dry van, temperature-controlled (refrigerated), and drayage services between ocean ports, rail ramps, and shipping docks.

But believe me the fundamentals of the US economy are much improved from where they were and we expect the economy to get back on track shortly.Source:

The catalyst that can drive Knight Transportation stock, and the entire trucking industry, higher, is that an increase in consumer spending and improved new home starts, will push the earnings of trucking stocks higher.

With a P/S of 2.26, Knight Transportation stock appears to be currently undervalued in relation to the amount of sales it is doing. The P/B of 3.64 suggests the company’s market value is fairly priced in relation to the assets it has. The forward P/E of 18.5 suggests the company is fairly priced in relation to its earnings. Knight Transportation stock trades with a hot PEG ratio of 1.26 which suggests growth can be purchased at a premium right now.

knight transportation stock eps forecastThe EPS forecast for Knight Transportation stock was just raised within the last few days. Just 7 days ago, the EPS forecast was for $0.36 per share. As of April 24, 2015 the EPS forecast has been raised to $0.37 per share.

The EPS annual growth rate for the last 5 years is an incredible 15.8%. EPS quarter over quarter is up a whopping 56.5%.

The company has had impressive revenue growth. Its annual 5 year revenue growth is 11%, with revenue growing 16.5% quarter over quarter. This suggests that revenue growth is starting to pick up.

On the negative side, the company has a debt to equity ratio of 11.04. They have $18.84 million in cash with a whopping $78.4 million in debt. Knight Transportation acquired 100% of the outstanding stock of Barr-Nunn Transportation, Inc. and certain affiliates, in late 2014.

The company appears to be adequately funded for 6 months or more. We see no immediate short term cash problems. The company has enough current assets to cover its current liabilities and its fixed expenses for the next six months.

Trends support predictions that contract rates are likely to rise in 2015… and will likely continue to trend up in Q2, following the typical seasonal pattern.Source:

Analysts at Raymond James downgraded Knight Transportation stock from “Strong Buy” to “Outperform”. Raymond James left its price target on Knight Transportation stock at $36. Raymond James analysts believe that the upside to the price target no longer justifies the previous “Strong Buy” rating.

Knight Transportation Stock Chart

Knight Transportation stock trades in the Trucking industry.

The Trucking industry chart has been in a Triangle, which is a consolidation pattern, since November 2014. I think the Trucking industry is going to take the next leg up if the U.S. economy and consumer continues to strengthen in the 2nd half of 2015.

Knight Transportation stock chart shows a giant Triangle pattern just like the Transportation industry. However the stock chart looks a bit more bullish like an Ascending Triangle pattern.

Disclosure: I do not hold any position in any stock mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Durable Goods Orders Huge Beat and Trending Higher

Durables orders rebounded 4.0 percent in March. Analysts called for a 0.5 percent increase. Wow but here’s the rub. This was all due to robust vehicle and aircraft orders.

Transportation surged 13.5 percent and that’s what made the Durable Goods Orders report beat expectations. That’s not exactly a measure of the U.S. consumer or broader economic activity. Nondefense capital goods orders excluding aircraft fell by -0.5%. Economists were looking for a +0.3% gain. Still, the stock market responded nicely to the report and that means so should we.

Outside oil, we think capex is rising at a decent clip, as it was before oil prices collapsed, but this is being swamped, temporarily, by the oil hit. The Fed, has to set policy based on the state of the overall economy, not any particular sectors, and we expect strength in the services sector to offset oil weakness and keep the labor market tightening rapidly over the next few months.Source:

Notice the right side of the chart that shows a series of higher highs and higher lows. That’s an uptrend folks. Since September 2014, Durable Goods Orders have been uptrending. Notice too that the previous swing high resistance at 1.9% in January 2015 was broke. In fact, the +4% headline number is the fastest rate of growth since the big move back in July of 2014.

Orders for durable goods show how busy factories will be in the future, as manufacturers work to fill those orders. The Durable Goods Orders report provides insight into demand for items such as refrigerators and cars, but also business investment such as industrial machinery, electrical machinery and computers. If companies spend more on equipment and other capital, they are obviously experiencing sustainable growth in their business.