We have various contacts at major cruise lines and commodities trading desks. Most of the airlines and cruise lines are now fully hedged on their fuel costs through the end of 2016. Even Carnival Cruise Lines, which previously prided itself on not hedging much of its fuel costs, has taken advantage of the decline in oil to hedge a bunch of their future fuel costs. Previously airlines and cruise companies have been slaves to the oil market, however, thanks to the decline in crude oil over the past few months these companies have more clarity on future costs than they have had in many years.

This seemingly positive phenomenon makes the recent price action in the transports all the more interesting:

IYT_Weekly_12.2.2014

The weekly chart of IYT (Dow Transports ETF) has all the makings of an upside blow-off which could now correct a further 5-10% quite rapidly. Lower fuel costs are supposed to be bullish for industries that are dependent upon fuel as their #1 cost, right?......The answer is YES, in theory. However, if the decline in crude oil and commodities in general are a symptom of a weakening global economy then the net result is much less clear.

What we do know for certain is that the transports were very overbought and overextended structurally heading into last Friday. Market participants used this opportunity to cash in some chips and reduce exposure to the sector. A deeper decline over the coming days would be a sign that last Friday was a major inflection point for the transports and potentially for the broader market as a whole.