Here's Why $2 Gas Could Trigger a New Bull Market

Are you like my dad?

My father is obsessed with gas prices. When I was a kid, I remember how he’d drive us all over town looking for the best deal. I think it all started during the Gulf War when gas spiked from 80 cents a gallon to $1. He was pissed—and all us kids could do was stare out the back window of the car while we passed by station after station…

Thankfully, I didn’t inherit the gas miser gene. To this day, I don’t give a damn about gas prices. In fact, I rarely note how much I pay at the pump.

But I did notice yesterday that gas prices are crashing right through support. On my way home from running some errands, I counted three gas stations selling a gallon of regular unleaded for $1.99 or less. So I looked it up when I got home—and wouldn’t you know it? 12 states are reporting average gas prices under $2 right now.

So, who cares that gas is cheap (other than my old man)? One group of maligned stocks would like a word with you…

I’m talking about the transports.

As you already know, transportation stocks haven’t kept up with their industrial cousins this year. Maybe this’ll jog your memory:

Dogged by the Dow

As you can see, the industrials have scratched back to breakeven as of Friday afternoon. But the lowly transports remain down more than 9% on the year.

Most investors have left these stocks for dead. That might be a mistake—because these transportation stocks are starting to fall in love with lower fuel costs. In fact, a breakout could finally show up before the year is up.

Take a look for yourself:

Transports Challenge a Downtrend

Even though they’re leaps and bounds from their highs, transportation stocks are starting to look constructive for the first time in a long time. Think about it. These stocks have done nothing but go down so far this year. And now we’re seeing them build their first multi-month chain of higher lows since their 2014 uptrend.

A solid breakout in the transports could also lead to good news for the major averages. Back in August I told you how a Dow Theory sell signal was starting to weigh on stocks. But a snapback rally in the transportation average (which led industrials lower, by the way) could do wonders for the rest of the market.

“One of the main principles of Dow Theory is that a true bull market can’t exist unless the Dow Industrials and Transports are rising together,” explains John Murphy at Stockcharts.com. “Up to now, that hasn’t been the case. But that may be about to change for the better.”

That brings us back to gas prices. We’ve already seen airline stocks take a commanding lead—the Dow Jones US Airlines Index is up almost 15% since it bottomed in August. Now it’s time to see if those pesky delivery stocks can jump onboard. They already have cheap fuel going for them. Murphy also notes that a solid holiday shopping season could get these stocks over the hump and add another performer to the list of comeback transport names.

Then there are the railroads…

PRO readers are already riding this transportation stock wave higher. I alerted them to a trade in CSX Corp. (NYSE:CSX) trade nearly two weeks ago. This railroad stock is up approximately 7% in just nine trading days.

If Friday’s breakout in CSX is any indication, we should see even more transportation stocks following suit in this shortened trading week. And that’s good news for the broad market…

This is one train you don’t want to miss.

Sincerely,

Greg Guenthner
for The Daily Reckoning

P.S.  If you want to cash in on the biggest profits this market has to offer, sign up for my Rude Awakening e-letter, for FREE, right here. Stop missing out. Click here now to sign up for FREE.

The Daily Reckoning