Shares of transportation logistic company Ryder System (R) got taken lower Wednesday along with the rest of the transportation sector and the broader market. After breaking to new highs during the late August/early September rally, the quick faltering of Ryder stock over the past two weeks is notable — and something that could be played to the short side.
On Wednesday, Wells Fargo initiated coverage of Ryder System with an “outperform” rating, but that failed to hold up Ryder stock as it closed at the absolute lows of the day.
This brings up an important point that is of particular relevance in this late cyclical bull market, where a “corrective” move of 10% to 20% for the broader U.S. equity indices is very much in the cards for the next few months. Stocks as an asset class are notoriously highly correlated, meaning that when the market is strongly trending higher, most stocks go up. The same is true on the downside, but even more so.
The rationale is that when markets falter, investors begin to panic and somewhat indiscriminately sell down their holdings. This not only accelerates the selloff, but also increases the correlation among stocks further.
In Wednesday’s selling, very little was spared from the risk-off attitude, but transportation stocks took a particularly good hit. Many large-cap transportation stocks such as R stock managed to crawl to fresh highs during the August rally, but those rallies notably came on waning upside momentum.
Ryder Stock Charts
On the weekly chart of R stock, note that in May it had reached the upper end of its trading channel (black parallels), and while still slowly trending higher, momentum began to diverge lower in a meaningful way (see the RSI indicator in the lower part of the chart). This negative divergence looks to finally have weighed on share prices, which now have lower to go in a mean-reversion move.
On the daily chart, note that after forming a mini double-top on Sept. 3 and 19, Ryder stock gapped lower on Sept. 22, and with Wednesday’s 2.62% selloff, R shares closed below their 100-day simple moving average (blue line) and support line for the first time in just about 12 months. Thus, when you consider the overbought readings and negative divergences on the weekly chart with the double top and trend/moving average break on the daily chart, the multiweek trend looks to be lower still.
Active investors and traders could look to get short Ryder stock for a better mean-reversion move into the low $80s, which is also where the rising 200-day simple moving average (red line) comes back into play. For risk management purposes, as always, any quick bullish reversal of Wednesday’s selloff would negate the bearish setup.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
