Reversals Mid-Session Suggest Strength Ahead in Transportation Stocks

When it comes to the trade in transports on Thursday, red tape in the morning may end up being a bigger warning for the bears than the bulls.

The big morning gap down in shares of United Parcel Service (NYSE: UPS) on Thursday still leaves the stock trading near technically oversold levels as of the close. This is so even with UPS finishing well off session lows. Down more than one and a half percent on the day, shares of UPS have a neutral, 6 out of 10, rating, but have already earned a positive edge of more than half of a percent in the short-term. Additional selling here, especially selling that is able to take the stock into oversold territory, should contribute to both higher ratings and a larger positive edge.

While the stock has not earned a “consider buying” rating in months, a 7 out of 10 rating in early March served as the prelude to a rally during which UPS closed higher for five consecutive sessions, gaining more than three and a half percent.

Also pulling back ahead of trading on Friday – albeit not nearly so dramatically – were shares of FedEx Corporation (NYSE: FDX). Closing lower for three out of four trading days after pulling back by three-quarters of a percent in Thursday’s trading, FedEx shares a neutral rating with UPS, and an even more modest short-term edge.

The fact that FDX finished near session highs on Thursday suggests that buyers may already be moving into the stock. FedEx has traded to new, two-week lows, but buyers have managed to keep the stock from finishing the day at technically oversold levels.

The weakness in leading transportation stocks like UPS and FedEx is reflected in the recent performance of the iShares Dow Jones Transportation Average ETF (NYSE: IYT). After all, the biggest holding in IYT is Union Pacific Corporation (NYSE: UNP), and the next two biggest are UPS and FDX. IYT was one of the few exchange-traded funds that was trading oversold during much of Thursday’s session (the other was the iShares S&P Latin American 40 Index ETF). But as buyers have lifted both UPS and FedEx off their session lows, so has IYT rallied from just inside to just outside oversold territory over the course of Thursday’s session.

Other stocks pulling back among the transportation cohort including a pair of trucking stocks: Con-Way Inc. (NYSE: CNW) and Landstar Systems (NASDAQ: LSTR). Shares of LSTR pulled back by more than 6% on Thurday to finish lower for three out of the last four trading days and near short-term oversold levels. CNW sold off by more than one and three-quarters of a percent in Thursday’s session as traders took profits in the wake of a two-day rally from short-term oversold extremes.

LSTR has a positive, short-term edge of nearly one and a half percent. The positive edge in CNW is just under half that of Landstar Systems.

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David Penn is Editor in Chief of