NEW DIRECTIONAL PUT PLAYS
iShares Transportation Average - IYT - close: 154.14 change: +0.58
Stop Loss: 156.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 458 thousand
Entry on April -- at $---.--
Listed on April 07, 2015
Time Frame: exit prior to May option expiration
New Positions: Yes, see below
Why We Like It:
Weakness in the transportation stocks could be the canary in the coalmine warning of future stock market bearishness.
The IYT is an ETF that mimics the Dow Jones Transportation Average. The IYT's top ten holdings are: FDX, UNP, NSC, KSU, UPS, R, JBHT, CHRW, KEX, and ALK. Put them altogether and the IYT reflects trading in the railroads, trucking, and airlines.
Many analysts look to the transportation average as a key indicator because transport companies are a barometer of the economy. These companies are moving goods around the country and around the world. If these companies are seeing trouble then it could suggest the broader economy is slowing down.
Considering the weeks and weeks of disappointing economic data in the U.S. it should not surprise us to see the IYT underperforming the rest of the market. The first quarter of 2015 has definitely slowed down. Q3 2014 saw U.S. GDP growth near 5%. Q4 2014 was about +2%. Current estimates on Q1 2015 GDP growth are nearing 0%.
The impact of crude oil's drop from its 2014 highs has already been factored in. Now investors have to consider what happens if oil has bottomed? Oil has been consolidating sideways the last couple of months and it's already up +18% from its March lows.
This year we've already seen some transportation companies lower 2015 guidance. Railroad giant Kansas City Southern (KSU) lowered guidance. Fedex (FDX) also lowered its 2015 guidance. This year we have seen truck tonnage and rail carloads falling.
The DJUSAR airline index has produced a bearish double top pattern and just broke down under support this week. The DJUSTK trucking index has also created a bearish double top and is testing technical support at its 200-dma. The DJUSRR railroad index looks the weakest with a breakdown below its long-term up trend.
Technically the IYT looks like it's in serious trouble with the bearish breakdown below support in the $154-155 area and below its simple 200-dma.
The point & figure chart is bearish and forecasting at $142.00 target.
Today shares of FedEx (FDX) surged on news it's planning to buy TNT Express, a European rival, for $4.8 billion. We think this is a one-day pop for both FDX and the IYT. Thus today's failed rally in the IYT near its 200-dma looks like an entry point to buy puts. Tonight we are suggesting traders buy puts at the opening bell tomorrow with an initial stop loss at $156.25.
*Buy puts at the opening bell*
- Suggested Positions -
Buy the MAY $150 PUT (IYT150515P150) current ask $2.15
option price is a current quote and not a suggested entry price.
Option Format: symbol-year-month-day-call-strike