Why Transports Matter

From IBD:

The railroad operator slashed its Q4 earnings outlook by 20 cents to $1.70 - $1.80 a share, below $1.98 forecasts. Union Pacific (UNP) blamed higher diesel costs. Q4 fuel costs will average $2.60 a gallon — 34% above last year — topping $2.70 this month. Union Pacific also cited weak Dec. traffic due to winter storms. Its shares fell 4%.

Here are some industry charts from Transmatch:



The 13-week rolling average of total traffic is increasing, and has been for awhile. That's a positive development.



But this year's total rail traffic numbers have in general been below last years numbers.

Here's the chart of the transports:



Notice the following.

-- The index is about 8% below the 200 day SMA.

-- Since August, the index has tried to rally above the 200 day SMA twice and been unsuccessful.

-- The 200 day SMA is now heading lower.

-- the 50 day SMA is heading lower.

-- prices are below all the SMAs.

On the good side -- or at least the neutral side we have the following:

-- the shorter SMAs are bunched up, indicating a lot of confusion about where the market wants to go. This is the same situation we're seeing with the big averages.

However --



On the five year chart, notice the index has clearly broken a 3 1/2 year uptrend and is now heading lower. However, the move lower is measured, meaning there doesn't appear to be any panic selling. That's about the only good thing about this chart.