The smartest minds on Wall Street use charting analytics to quickly identify and then track trends in multiple data sets. Why? Because it works. Even the most intelligent investor or skilled trader identifies patterns in numbers when they are charted far faster than when those numbers are simply displayed in columns and rows. Graphically depicting data becomes more important when you are trying to compare two or more data sets and understand the relationship between them over time. When viewing a chart of a couple of data sets that are related, you begin to understand the reason of the marketplace. If you can add a series of technical indicators to the graph, you begin to understand the rhyme and the reason of the marketplace.
SONAR allows you to quickly view graphical series of data, many of which weren’t previously available to professionals trading the marketplace. More importantly, it allows you to view those data series compared to other data series (some proprietary, others not) and then apply the type of sophisticated technical indicators to the data series that are normally reserved for Wall Street. Patterns in the data don’t just sit there quietly as numbers; they literally jump off the screen at you. What are a few of those ‘jumping off the screen’ at us right now?
The FANG stocks are down, no they are up! Bitcoin has declined dramatically! When will the Fed stop raising rates, and how much will it raise them before it stops? Will there be even more trade tariffs and what will POTUS tweet next? Financial markets have been very volatile and both looking for as well as finding plenty of things to worry about. Especially in times such as these, we prefer to go back to the basics. Are people still making things, shipping things, and buying things? According to the railroad car data, the answer is a definitive “Yes.”
We’ve talked at length over recent weeks about the inbound import container volume coming into our ports. We’ve explained at length how that drives demand for trucking, especially dry van trucking, and both the how and why of its ability to predict the strength of holiday shopping. Another way to follow that data is found in SONAR under RTOIC.USA (Rail Traffic Originated by Intermodal Containers in the US). This weekly data includes volume picked up by all the railroads and includes both international containers coming into the ports as well as domestic containers from carriers such as JB Hunt. For similar reasons to the volume of inbound international containers, this data has also historically been highly correlated with strong consumer spending, especially in the fall. Unlike the port container volume, it can produce false positive signals on the consumer when diesel prices spike and drive volume off the road and into domestic intermodal (the inverse is also true). That said, diesel prices have been declining in recent months and are now only about 15% above year ago levels, yet the rail container volume data is predicting strong consumer spending consistent with the port volume data. So, the consumer economy is still making things, shipping things, and buying things – check.
What about the industrial economy? Oil prices have been declining. Most industrial companies are capital intensive and as a result more adversely effected by higher interest rates. Tariffs could arguably hurt the industrial economy long before the consumer economy. So, are the market concerns warranted? Our favorite way to answer this question for years has been to look at the volume of chemicals shipped by railroads in the U.S. It has been highly predictive of both the U.S. Industrial Production and the U.S. ISM Manufacturing Index. Why? Simple reason – in order to make or assemble a magnitude of almost anything, you have to consume some chemicals. The more you are making, the more chemicals you’ll need. The less you are making, the less chemicals you’ll need.
RTOCH.USA (Rail Traffic Originated by Chemicals – USA) is clearly signaling that the U.S. industrial economy is still making things, shipping things, and buying things – check.
Bottom line – markets often worry too much, and provide opportunities for investors and business planners with cooler heads, especially if they have the data to see a little further over the horizon that the rest of the marketplace is.
Stay tuned…
Donald Broughton – chief market strategist