Confirmation Abounds

Dow Theory, as I mention from time to time in this space, has as one of its tenets that new highs in either the Industrial or Transportation index need to be confirmed by a new high in the other index for the move up to be validated. The race to new levels between these two indexes recently resembles one of those carnival games where the horses advance as you squirt water into the bull’s eye. i.e. There’s a lot of confirmation going on.

A glance at the weekly highs and lows in Barron’s shows 343 new highs and 4 new lows on the NYSE and the VIX closed at its lowest level of the last 52 weeks on Friday at 24.2 after hitting an intraday low of 22.5. Additionally the Put/Call ratios on the CBOE and S&P are hanging right near their bullish levels of 60 and 125 respectively. Has anyone checked the calendar?

Consumer sentiment posted its first positive month since June on Friday coming in at 70.20 for September. For a little perspective the indicator started at the year at 61.20 in January, made its low for the year in February at 56.30 and then moved up smartly nudging just above the 70 mark in June with a 70.80 print.

Prior to June, the last time the indicator was at these levels was September of last year when it spiked to 70.30 coming from the mid-fifties and returning promptly to them.

Hangin' a U-ey back to the Transports for a moment FedEx (FDX) added to the feeling good feelings on Friday when it raised its earnings expectations. The company’s finance chief, Alan B. Graf Jr. stated that “the company is anticipating ‘a continued modest recovery in the global economy’”.

Reading between the lines it would appear the word “global” is key in Mr. Graf’s missive as the company attributed its improved outlook to international shipments. Donald Broughton, an analyst with Avondale Partners highlighted this when he said,

Its not just what FedEx said, it’s what they didn’t say; the global economy is showing more signs of life, more signs of strength than the U.S. economy.

This could be confirmed by earnings results from Navistar (NAV) which reported a loss of $12MM or $0.16/shr on Friday missing Wall St.’s expectations and sending the stock down to $43.80 or 4.1% in after hours trading. The truck maker also lowered its fiscal year earnings forecasts to a range between $2.55 and $2.85 after lowering them previously in June.

FDX’s CDS had been in a fairly narrow downtrend from March to July but then reversed course before moving sideways. On 9/7 FDX CDS was 90bps. They closed at 70bps on Friday. The stock corroborated the CDS move both in the March to July period and also on Friday opening $3.29 higher and closing $4.66 higher at $77.32.

NAV has hit a few potholes this year, stalling a few times on its trip higher from March to May but then remaining in a trading range bounded by the 6/25 high for 2009 of $47.03 and a subsequent interim low of $37.30. The stock appeared to be refueled on 8/26 when it closed at $47.27 but it ran out of gas and dropped to $42.10 by 9/1 before closing at $41.78 on Friday.

NAV’s CDS would look to have planned a different route for the truck maker moving down on a much less bumpy road than the stock took up. The CDS low of 553bps was posted on 8/24 not a great distance from Friday’s close of 610bps.

Comments

[Tony Petroski:]

Do I get this right? Dow theory is superceded by reading between the lines of what the Fed Ex guy says about the global economy?

Sep 14 01:33 PM