Railway Transport: Pullback Fears May Be Over

Often considered a leading indicator, the Dow Jones Transportation Index remains just slightly in positive territory for the year, despite Wednesday’s big sell-off. The transports have declined just 0.28% in the past three months, while the Dow is down 8.39% and the S&P 500 has fallen more than 10%.

After setting its relative strength lows on January 9, the transports began diverging positively versus the broader market even before both the S&P and Dow hit their January 22 lows, according to RBC Capital Markets analyst Ray Hanson. And the transports have continued to outperform in the past week or so.

So if you are willing to accept the transports as a litmus test of future economic activity, fears about a major pullback appear to have already peaked, Mr. Hanson told clients in a note. He said:

Given that the rails are leading within the sector, it suggests that the weather/earnings-inspired sell-off in CP Rail and CN Rail over the past few days is creating an attractive entry point.

The analyst also highlighted movements for other names in the sector:

Burlington Northern Santa Fe Corp. (BNI): It is leading the group, and broke out to a new six-month high on Tuesday.

Union Pacific Corp. (UNP): It ended Tuesday at the high of its January to March range, short-term momentum has just turned up, and its most recent pullback held at the 200-day average.

CN Rail (CNI): It has pulled back more than its U.S. counterparts in recent days, but has held up relatively well to the TSX.

CP Rail (CP): It has a stronger relative strength profile than CN Rail.

Comments

[onelittlesalmon]

The aging railway tracks that run like zippers across North America need massive updating and structural improvements, as noted by CN's recent multi million dollar commitment to infrastructure. Check out "CP Rail Killer Culvert" on Youtube. Google it to find the different videos on-line. Read the comments! Continued negligence by the rail industry will lead to massive environmental damage in the US and Canada.

[LogisticsMac]

Rails have a ever growing moat over highway transport due to the run up in fuel. Combined with the green initiatives of most European companies which always moves to our shores, the advantage of rail vs highway in certain lanes has companies exploring options they scoffed at when fuel was lower. I recently calculated saving over 800 tons of CO 2 for a large shipper utilizing intermodal vs his long standing use of trucks. IM service is within 48 hours of truck service and averages 20% less in costs. Inventory adjustments are not accounted for yet, but the point is well served..rails will gain vs highway for long haul business.