U.S. Stock Market - 9th Straight Winning Day for DJIA

Today was another winning day for the Dow Jones Industrial Average, the 9^th straight. Even though today’s gain was modest in the DJIA (like yesterday), most other major indexes also posted a winning day today (unlike yesterday). And what is the story behind the Dow Jones Transportation Average? The DJTA posted a convincing all-time record high today with a 1.63% single session gain. Airlines, railroads, delivery services, and TRUCKING STOCKS were all big winners today, especially trucking stocks. JB Hunt Transportation Services (JBHT) was the stand-out winner with a 6.19% gain and a new 52-week high. There was a positive research report in the on-line edition of Investors Business Daily last night which may have served as the catalyst here, but something just doesn’t look right. JBHT trades at 29x TTM earnings, 21x Forward 12-month expected earnings, and 11x Book Value. This Company has no cash and it has no free cash flow, but it’s now up 25% year-to-date (and this in the face of record high fuel prices for this time of year). Interesting! Why this stock is favored over Apple is a complete mystery. Apple trades at 10x TTM, 8x Forward 12-month earnings, 3x Book Value, has $42/share in Cash, and trades at 9x Free Cash Flow per share. In the interest of full disclosure, I have no positions in JBHT or Apple, but I am considering a potential long position in Apple.

Here are today’s closing marks, with changes from Tuesday’s close:

                                                                                    Wednesday’s Changes                       

Dow Jones Industrial Average                       14,455.28        +  5.22             +0.04%           

S&P 500 Index                                                 1,554.52        +  2.04             +0.13%

NASDAQ Composite Index                              3,245.12        +  2.80             +0.09%

Russell 2000 Index                                              943.90        +  3.64             +0.39%

Dow Jones Transportation Average                 6,232.59        +99.74             +1.63%                       

Besides the blowout upside day experienced in the Dow Jones Transportation Average, I think the most noteworthy price action today was in the T-bond market. This morning’s better-than-expected February Retail Sales report had the obvious negative impact on bond prices early in the day, but surprisingly strong bids at today’s 10-year Treasury note auction provided a significant boost for longer term Treasury securities in afternoon dealings. The T-bond ETF (symbol TLT) was down as much as $0.65 (0.56%) in morning dealings, but after the 10-year auction results were released at 1:00 PM CT, the TLT rebounded to plus territory before ending slightly lower on the day (115.56 -0.12).Why was the 10-year T-note auction so well received? The bid-to-cover ratio was 3.19 as compared to 2.92 over the last 10 auctions. And indirect bidders (which include foreign central banks) purchased 47.7% of all notes sold today as compared to an average of 36% for the last ten auctions. Tough to reconcile today’s strength in long term Treasury bond prices with today’s exceptionally strong U.S. Retail Sales report. For anyone who has read this column over the last month or so, you may not be surprised to hear that I think today’s relative strength in T-bond prices represents a warning sign of trouble ahead of the U.S. and global economies.

For your review, I have attached a copy of the weekly bar chart for the Dow Jones Transportation Average which posted a new all-time record high today. The DJTA is now up 194% from its March 2009 bear market low. This compares to 98% gain for the DJIA and a 133% gain for the S&P 500 Index over the same period.

Bottom Line: Anyone who says he is bearish on the U.S. stock market but not worried about today’s surge in the Dow Jones Transportation Average is either lying or wearing blinders. My wife reminds me almost everyday now that I have a pretty good computer system which hasn’t triggered a “red dot” sell signal yet in the key Weekly Bar Chart algorithm. Maybe we should just wait on the sidelines until a weekly chart sell signal is triggered before executing short-sales; or at least wait until another daily chart sell signal is triggered. The first daily chart sell signal was triggered on February 20^th in the DJIA and the S&P 500. That signal was less than effective, to say the least. Maybe we need to post a new record high in the S&P 500 Index before the next significant correction? Since the S&P 500 is only 10 points away (0.68%), perhaps we won’t have to wait long?

P.S. Since yesterday’s column, when I mentioned that Apple was one of only five stocks on my computer screen for “undervalued” stocks, I now have a request from a reader for the names of the other four stocks. I have NO positions in any of these stocks and am NOT considering the purchase of any of these stocks for any of my managed accounts, but they all look interesting. Here are the other four so-called “undervalued” stocks from my latest computer screen: #1 Renewable Energy (REGI), #2 Ebix, Inc. (EBIX), #3 Stoneridge Inc. (SRI), #4 Select Medical (SEM). It should be noted that ALL of these stocks have very good reasons why they have fallen in price to levels where my “undervalued” computer stock screen has found them. Caveat Emptor, please !

Dow Jones Transporation Average Weekly Bar Chart