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One little talked-about transports stock could be about to break out

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Hard to see a rally in transports going forward, says investing pro

Transports are stuck at a red light this month.

Avis Budget, American Airlines, Norfolk Southern and FedEx have led a steep decline in August, while the IYT transportation ETF has plummeted 6%, more than double the drop on the S&P 500.

Ari Wald, head of technical analysis at Oppenheimer, says one name has raced past the rest on its way to even more gains.

"The name that stands out for us is trucker Old Dominion Freight Line. [It's] coming out of a bullish triangle pattern that projects to new highs. That's the way to play that weak group," Wald said Tuesday on CNBC's "Trading Nation."

Old Dominion Freight Line has fallen just over 1% this month, far better than the 7% decline in the rest of the road and rail stocks.

As for the rest of the space, Wald says this latest breakdown is just another leg in an overall downtrend since October.

"Transports broke down last October 23rd, industrials subsequently broke down December 14. If you use Dow Theory exclusively, you've been cautious on the market since then," Wald said.

Dow Theory posits that a breakdown in the transports will precede a drop on the overall Dow Jones Industrial Average, and vice versa. It relies on the idea that an economy that produces will then need transportation to deliver those items.

"It really highlights what's been a market of haves and have-nots. We looked back and found that transports also underperform during very big, strong, technology-led runups in the 1950s, 1960s, and 1990s. So, I think that's the environment we're in."

Boris Schlossberg, managing director at BK asset management, says transports are looking cheap, but he agrees caution is the best way to approach the group.

"Maybe it's not a red light, but it's definitely a yellow light at this point." said Schlossberg. "Transports to me are really a macro story, and not necessarily even as far as tariffs and trade, but much more with manufacturing."

Schlossberg says a slowdown in manufacturing and the broader economy will continue to pressure the group.

"Until you see the manufacturing ISM stabilize or in best-case scenario actually start to have a month-over-month increase, you're going to have a very hard time seeing any kind of rally in transports going forward," he said.

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