Mon Nov 03 2014
Live Index (1446 articles)

The Charts Warn Something is Very Wrong in This Sector

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It is hard to write a bearish stock review when the Dow Jones Industrial Average is having one of its best two-week rallies. But that is where the data takes me when we look at the trucking sector.

The Dow Jones U.S. Trucking Index has outperformed all year, but on a day when the Dow industrials soared over 200 points, up 1.3%, the trucking index was down about 2%. Something has changed here, and it looks to be time for investors to sell these stocks.

Let’s start with a trucker with a chart that mirrors that of the sector as a whole, CH Robinson Worldwide (NASDAQ: CHRW).

We can see a nice rally with a gently corrective decline. When the market as a whole bottomed out in mid-October, CHRW went on a tear higher.

From Oct. 13-28, it gained an impressive 14%. The next day, after releasing better-than-expected third-quarter earnings, the stock was up big at the open but closed with a loss for the day. Chart watchers call that a failure, as bad price action on good news is bearish.

Then, on Thursday, we saw a gap down on the open and follow through to the downside intraday.

Again, all of this happened within a strong stock market, so clearly something is very wrong here. It is not hard to see this stock erasing its entire October gain before Thanksgiving.

When fuel prices have been in decline for months, you might be wondering why the trucking sector looks to be in trouble. We can surmise that energy did indeed have a lot to do with the sector’s performance this year. However, at some point, low energy prices reflect weak demand in the economy. Too much of a good thing — falling fuel prices — is not always a positive.

Con-way (NYSE: CNW) has a very different looking chart.

Technically, this lagging trucker failed in its attempt to regain its 200-day moving average after falling below it earlier in the month.

After the closing bell Wednesday, the company released better-than-expected earnings, but on Thursday, it opened sharply lower. Because CNW was down more than 6% in one day, it could bounce significantly powered only by scalpers looking for a quick rebound.

However, since the downside target looks to be important support around the February lows near $ 36.75 and 13% below current prices, it does present enough of a reward for short sellers if we wait for the bottom fishers to finish. Being the conservative trader that I am, I would set the sell trigger at $ 43.75 to reduce risk and sleep better.

Weak stocks in a strong market are sending us a message. If the market itself weakens, then the bears would have the wind at their backs and the losses in the trucking sector could multiply.

Recommended Trade Setups:

— Sell CHRW short at the market price
— Set stop-loss at $ 71
— Set initial price target at $ 63.50 for a potential 8% gain in three weeks

— Sell CNW short at $ 43.75
— Set stop-loss at $ 45.50
— Set initial price target at $ 36.75 for a potential 16% gain in five weeks

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