Pull That Empty Rig Over, Trucker! (JBHT)

A guy I knew in high school told me a story about a prank some older fellas pulled on him one day after football practice.

Seems the seniors had a bit of a mean streak and decided to place a large wad of bubble gum in the youngster’s briefs.

Needless to say, our acquaintance noticed nothing on returning from his post-practice shower, donned his BVDs in a jif and headed home.

Trouble was, he said, about five minutes into his walk he began to feel a tugging down below, slowing him down and exerting a varying itchy/sticky sensation where none ought be found.

Gumming Up the Works

We won’t trouble you with all the gory details (involving a can of WD-40 and a pair of his mother’s pinking shears), except to say that the real world analog to this equally true story is now taking place in the transport sector, where a vicious and fast-spreading disease is wreaking havoc on commerce both domestic and foreign and all but crippling those who deliver the goods.

Today’s trade is a play on trucking behemoth J.B. Hunt Transport Services (NASDAQ:JBHT), proud member of the Dow Transportation Index and very likely on her way to a near term loss.

But before we show you the charts, consider the following –

• JBHT missed Q4 earnings targets by some 10% on January 20^th.
• Analyst estimates for Q1 for the company (and for the truckers as a whole) have since been pared back by a full 9%!
• Trade war issues – and now the coronavirus – are putting pressure on the company’s revenues.
• And her CFO announced he’s leaving in two weeks.

Beyond that, the overall environment for the truckers doesn’t look healthy.

See here –

According to the latest Transportation Services Index numbers (upper chart), we have a steepening decline across the board, in trucking, rail, inland waterway, pipeline and air freight, while…

Truck tonnage numbers show declining shipments and a greater number of less-than-capacity loads going out.

Don’t Stand in Front of a Southbound 18-Wheeler

Now look at J.B. Hunt’s chart for the last six months –

According to our read, the stock could be on the verge of a steep break lower.

Consider –

1. Both RSI and MACD are sub-waterline (in green), indicating momentum belongs to the bears,
2. A developing head and shoulders top (in blue), with the neckline less than 2% below current levels (in red) could bring the shares below 100 should price break support at 108.
3. Friday’s price decline of nearly 4% was triggered by poor earnings from truck rent/lease mavens Ryder System, Inc. (NYSE:R), whose shares fell 10% on the day. That sort of sensitivity bodes ill for the sector going forward.

That said, the Head and Shoulders top could take a while to play out, so we’re playing it safe, with the sale of a CALL spread and the purchase of a PUT spread.

Like this –

A Jew and His Money recommends you sell the JBHT May 15^th 110 CALL for $5.50 and buy the JBHT May 15^th 120 CALL for $1.95 (credit $3.55).  Then purchase the JBHT May 15^th 110 PUT for $5.50 and sell the JBHT May 15^th 100 PUT for $1.80 (debit $3.70).  Total debit on the trade is $0.15.

Maximum gain on the trade is $9.85

Maximum loss is $10.15.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew