Thursday, April 23, 2009

How Does the Transport Average Stack Up to Current Price Action?

From Bloomberg:

United Parcel Service Inc., the world’s largest package-delivery company, posted a profit that trailed estimates and forecast second-quarter earnings short of analysts’ projections as the recession curbs shipping.

First-quarter net income fell 56 percent to $401 million, or 40 cents a share, the company said today. Excluding non-cash costs to write down the value of UPS’s 40-year-old fleet of DC-8 jets, profit was 52 cents a share, trailing the 56-cent average of 16 analyst estimates compiled by Bloomberg.

UPS is considered a bellwether for economic health because it handles business and consumer packages worldwide. It said profit this quarter would be 45 cents to 55 cents a share, less than the 66-cent average among analysts surveyed by Bloomberg.

“Economic indicators tell us recovery in the U.S. might begin late this year, but more likely not until 2010,” Chief Financial Officer Kurt Kuehn said in a statement.

Sales slid 14 percent to $10.9 billion, only the second quarterly drop since Atlanta-based UPS first sold shares to the public in 1999.

This data point got me thinking about the Transportation average -- more specifically, whether or not the Transports were confirming or denying the rally. The reason is based on Dow Theory, which is:

A theory which says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high, it is accompanied or followed by a similar advance in the other.

The above chart caught my interest because prices are still below an important trend line. While the SMAs are in a pretty bullish configuration (shorter about longer, two of the shorters moving higher and the longer one moving sideways), prices are still below an important trend line.

In addition,

The MACD is a bit over-extended at these levels.

The three months chart shows two very important technical points.

1.) The upward sloping trend line that started at the beginning of March is now resistance as opposed to support.

2.) Prices have approached the downward sloping trend line twice only to be rebuffed.

If this chart is going to move higher it needs to do so soon.