(This is an excerpt from an article I originally published on Seeking Alpha on August 29, 2015. Click here to read the entire piece.)
The iShares Transportation Average (IYT) began to diverge notably from the S&P 500 (SPY) in March of this year. It took another five months for this divergence to resolve into a notable breakdown in the S&P 500.
Source: FreeStockCharts.com
The divergence caught the attention of many technicians but after month-after-month of no consequence, this predictor seemed to fail. The divergence even seemed to come to an end in July with IYT staging an impressive comeback. The transportation index registered a 4.1% gain and traded above its 50-day moving average (DMA). The S&P 500 gained 2.0% that month. I guess the light bulb really does shine brightest right before it goes out.
Another divergence may be occurring WITHIN the transports. On Friday, August 28, 2015, Nightly Business Report included a segment covering America’s biggest truck “beauty pageant” in Dallas, Texas where the news on the economy was very bullish. {snip}
Source: US. Bureau of Transportation Statistics, Truck Tonnage [TRUCKD11], retrieved from FRED, Federal Reserve Bank of St. Louis, August 28, 2015.
{snip}
Trucking is undeniably critical to the American economy. NBR noted that nearly 3/4 of all freight in the U.S. travels by truck at some point along the way. The American Trucking Associations (ATA) notes that 69% of tonnage carried by all modes of domestic freight transportation goes by truck, with motor carriers collecting 80% of the total revenue earned by all transport modes.
{snip}
Trucking executives interviewed on Nightly Business Report were very bullish.
{snip}
Source: Nightly Business Report
{snip}
Source: Nightly Business Report
Perhaps inventory levels are so high specifically because retailers are anticipating very strong future sales.
{snip}
Be careful out there!
Full disclosure: long SSO shares
(This is an excerpt from an article I originally published on Seeking Alpha on August 29, 2015. Click here to read the entire piece.)