I just wanted to take a look at spot gas prices and transports given the recent bullish argument of economic strength.
This first chart is the recent action in spot gas prices. We see it holding an important gap. We can use that gap area to determine the short term trend in the coming weeks.
Next is the long term view of gas prices. Note the trend-line that has capped price back to the highs from 2008. A move over this area may lead to a very sharp rise. However, the equity markets have had a heck of a run and resistance hasn't broken. Is this a real cap on fuel prices?
Let's compare this chart to the Dow Transports over a similar time frame.
For quite some time I pointed out the potential large rounding top in the Dow Transports Index. The index has clearly invalidated this idea and has ripped nearly 20% from the breakout point.
This signal is very strong and isn't likely to change over the next couple years. At this point these stocks look very buy-able on the next intermediate correction.
BTW, this chart is definitely one reason Jim Cramer is recommending Airlines and rails.
The major take-away here is the transports are leading fuel prices. Is this because of increased economic strength? If it was, wouldn't we expect fuel prices to confirm the action in the transports?
If this is a divergence that can't last, which end of this rubber band snaps back the other way? Nothing says these have to move together. It just seems logical that they would.
Maybe the transports are leading as a the result of low interest rates and increased fuel efficiency? Or Is it due to the North American energy boom?
Hell there are probably a few good talking points I missed. I just thought I would share these charts as they stirred up some thought this weekend.
What do you think?