Here’s Why Knight-Swift Transportation (KNX) May Be The Most Frustrating Trade

Typically, astute investors seek out slam-dunk opportunities; that is, trades that are fundamentally undervalued yet are also deeply underappreciated by the masses. For truckload carrier giant Knight-Swift Transportation (KNX), however, the situation is exactly the opposite. While several bullish arguments support the continued upside narrative for KNX stock, it’s also weighed down by significant macroeconomic headwinds. Therefore, only the most committed traders should approach KNX.

On the bullish front, from surface level to the granularity, it’s difficult to ignore the enthusiasm for the transportation stalwart. For starters, the performance of KNX stock in the open market rates as impressive. On a year-to-date basis, KNX gained 11.4% of equity value through the close of the Jan. 31 session. For comparison, the benchmark S&P 500 gained 6.6%.

Further, the contrast becomes exponentially sharper when assessing the trailing one-year performance. For KNX stock, this metric reached 4.1% up. For the S&P 500, it succumbed to 10.34% down. Given that the truckload carrier industry symbolizes the economic rubber meeting the proverbial road, robust enthusiasm for Knight-Swift should be a very positive catalyst for broader growth.

Zooming out wider, Barchart’s Rich Asplund stated that various U.S. economic reports “…showed an easing of price pressures and inflation expectations, which bolsters the case for the [Federal Reserve] to slow its pace of interest rate hikes.” By logical deduction, slower inflation should lift consumer sentiment, which would then offer downwind benefits to KNX stock.

Still, even with the fundamentals, the narrative of slowing inflation presents an interpretive conundrum. Data cited by the AP suggests that because the Fed implemented aggressive rate hikes last year, the action “artificially” disincentivized consumer spending. In other words, if the central bank hadn’t intervened, spending might have accelerated.

Unfortunately, because of the associated rising borrowing costs, wider economic activity slowed. Subsequently, layoffs struck even mighty big tech, disclosing fissures in the economic system. Fundamentally, this wouldn’t be helpful for KNX stock and the derivatives market appears to have responded accordingly.

Put Volume for KNX Stock Skyrockets

Following the closing bell on Tuesday, options activity centered on KNX stock left many traders scratching their heads. Per Barchart.com’s screener for unusual stock options volume, Knight-Swift’s total volume level reached 27,993 contracts on Jan. 31. This stat represented a delta of 428.27% against the one-month average total volume.

More significantly, put volume reached 26,289 contracts compared to the diminutive call volume reading of 1,704. At time of writing, the implied volume (IV) rank hit 19.78%. Over the past 52 weeks, the IV low was 26.96%, set on Aug. 16, 2022. The IV high reached 46.21% on Oct. 17, 2022.

To be sure, investors shouldn’t base their decisions on any one stat exclusively. Providing a counterbalance toward the spike in put volume stands the technical analysis argument. Per Barchart’s technical indicator, the investment resource rates KNX stock as a strong buy. Throughout the time spectrum (short, medium and long term), KNX enjoys a 100% bullish assessment.

You can’t ask for much better, particularly with Barchart’s proprietary Trend Seeker rating KNX stock as a buy. Observationally, Knight-Swift shares hit a high (on an average weekly price basis) in December 2021. It then rounded down to a bottom in June last year before reaching near the same level as December 2021.

From the view of technical analysts, KNX stock may have incurred a healthy consolidation phase. With the “toxicities” driven out of its system, Knight-Swift can resume its previously bullish trajectory. Indeed, some of the fundamentals – particularly slower inflation – would support this thesis. Nevertheless, investors will still want to exercise caution.

The Trucking Faces Question Marks

While not dismissing the positives for KNX stock, it’s also fair to wonder whether it’s sensible to rely on sustained economic resilience. As stated before, mass layoffs have already impacted thousands of jobs. These are not throwaway come-as-you-are-all-are-welcome jobs. These are good jobs, high-paying occupations that require expensive education or in lieu of academic rigor, gobs of talent.

At some point, the erosion of these power players among the working class should impose a disproportionate impact on the broader economy. In turn, that’s not great news for KNX stock.

Other factors to consider include the broader transportation industry itself. For instance, truck tonnage hit a high in August 2019 and this peak was never quite threatened. The stat increased steadily from August 2021 through September 2022. Since then, the data shows a sharp drop off.

Further, while the number of truck driving employees increased to an all-time high recently, the sector’s growth rate diminished noticeably. That’s not to say that there won’t be any improvements later. However, with the slowing trucking industry sparking concerns of a recession last year, it’s hard to imagine that the paradigm changed so dramatically in the past few months.

Keep in mind that the geopolitical situation in Eastern Europe remains hot – and could get hotter still. And while inflation cooled, it’s still elevated from historical norms. Factor in the job losses arguably necessary to cool said inflation and a recessionary outlook still carries credibility. As stated earlier, only high-conviction traders should consider engaging KNX stock.

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