Trucking Stocks: Of Black Swans and Shorts

The outlook for equities in the U.S. continues to be somewhat bearish, at least for the near term. There is always a possibility of an upside catalyst, which could conceivably take the form of a black swan event as it would have such dramatic impact on the market. By definition, a black swan appears totally out of left field and has a highly dramatic effect. It is only by looking in the rear view mirror by much post mortem analyses, that reasons appear to suggest that the phenomenon was not as random as first thought.. Finding oil in one’s backyard can be considered to be a black swan event on a personal level as many people in North Dakota are coming to discover. Google (GOOG) is considered to be a black swan as is was almost impossible to predict before hand that the company would achieve its current position of dominance across the industry and indeed, the world.

Outside of such an occurrence as it pertains directly to the current market environment, an interesting trading strategy could be to short those market participant who made premature bets that the market is ready to rebound. In that regard, the trucking sector appears to be a prime candidate for shorting at the moment given the challenging macroeconomic environment and surging fuel costs. Additionally, despite the fact that it has sold off significantly, the financial sector is still vulnerable to the downside. There are still unknowns lurking in the books of many of these institutions, which could precipitate further write downs and destruction in shareholder value.

Overall, market participants do not appear to want to exit their existing holdings, but on the other hand, they are not necessarily adding to their positions either. This is a major reason why rallies are not being sustained. This view is clearly illustrated by the current reading on the volatility index or VIX as is more commonly known. At present, the index indicates that the level of fear that is consistent with a market bottom is just not apparent. Until this signal appears, there will always be a greater potential for a downside move in the market as opposed to the development of an uptrend.

As it currently stands, it is primarily gold, energy, and the agriculture related issues that appear to be working. Candidates for shorting among the truckers include YRC Worldwide Inc. (YRCW), Heartland Express, Inc. (HTLD) and Werner Enterprises, Inc. (WERN). In the final analysis, riding this down trend is going to be more lucrative in the end than trying to make bets on an exact bottom or a black swan.

Written by Conley Turner, a Research Analyst for Wall Street Strategies, www.wstreet.com specializing in the Oil Services sector.

Disclosure: none

Comments

[blink0404]

As the market continues to go down, shipping, which used to be a safe haven, now looks like it may be subject to a downward trend. Here's a pretty good podcast that discusses what to during this down market and what's going on with coal, steel, bulk shipping, and agriculture.

the main idea is that individual investors dont have to act like institutional investors and this market and may be better holding cash than trying to beat the market.

[blink0404]

opps.. here's the link
www.greenfaucet.com/sh...

[red rocket]

how do you explain the breakout of WERN then?