Confirming Dow Theory, the Transports notched all-time highs along with the Industrials this year, and MoneyShow’s Tom Aspray examines the charts for buy candidates in this red-hot sector.

The focus Wednesday was on the ninth positive close in a row for the Dow Industrials even though it was only up 0.04%. The S&P wasn’t much better as it was only up 0.13% and both lagged badly behind the Dow Transportation Average as it gained 1.63%.

So far in 2013, the Transports are up over 17% versus just over a 10% gain in the Dow Industrials and 9% in the S&P 500. Of course, in 2012, the Industrials were up just over 7%, only 1.5% better than the Transports, but both badly lagged the 13.4% gain in the S&P 500.

Click to Enlarge

The Transports are made up of five primary industry groups. The iShares Dow Jones Transportation Index (IYT) is up 28.3% since the November 16 low, but the Dow Jones Airlines Index (DJUSAR) is up a whopping 57.4%. The railroads were the second best performing industry group, up 25.7%, followed by the transportation services. The Dow Jones Trucking Index (DJUSTK) has been weakest as it is up only 14.2%.

From a seasonal perspective, the Transports typically form an interim bottom at the end of March and then rally into early May. The Trucking group typically forms a major low in October, with a minor low in early March, leading to a final high in early May. A technical examination of the key industry groups in the transportation sector will help develop a strategy for adding further positions in this hot sector.

Click to Enlarge

Chart Analysis: The weekly chart of the iShares Dow Jones Transportations (IYT) shows the breakout of the year-long trading range, lines a and b, late last year.

  • After the breakout in December (line 1) there was a retest at the end of the month before it accelerated to the upside in 2013.

  • The relative performance moved above its WMA in October and broke its downtrend, line c, in December.

  • The OBV moved through its WMA in December, but did not break its downtrend until early 2013.

  • IYT had a five-day pullback in February before again accelerating to the upside.

  • There is first support for IYT at $107-$108.40 with the monthly pivot at $105.88.

The Dow Jones Airlines Index (DJUSAR) has just moved above the October 2010 high with the major 61.8% Fibonacci retracement resistance from the 2007 high at 164.41 now at 110.

  • This retracement resistance level is over 14% above current levels.

  • The weekly relative performance moved above its WMA in early November.

  • The major resistance (line g) was overcome at the end of January, which completed the major bottom formation.

  • There is first meaningful support now in the 80-85 area, which includes the sharply rising 20-week EMA.

  • The daily studies (not shown) are strong and show no signs yet of a top.

  • One of the lagging airline stocks is Chile’s LAN Airlines S.A. (LFL), but it shows no signs yet of a bottom.

NEXT PAGE: Bullish Signs for 2013

Tickers Mentioned: Tickers: JBLU, KSU, LFL, LSTR, ODFL