Very quiet session today, but notable in that modest good news on China trade did not simulate the m...
Are the Transports Turning the Corner?
01/21/2015 10:15 am EST
The Dow Transportations led the market higher on Tuesday, so MoneyShow’s Tom Aspray technically analyzes the charts of the leading Transport’s ETF and one railroad stock to see if the current pullback has provided a good buying opportunity.
The tug of war between the bulls and the bears resumed on Tuesday as—after a higher opening—stocks reversed to the downside, but the failure of any heavy selling to emerge allowed a late rebound. The declining stocks led the advancing ones by a slight margin. The global markets are waiting for Thursday’s ECB announcement.
Apparently there was a data problem with the McClellan oscillator after last Friday’s close as the normally very reliable vendor corrected their data after Tuesday’s close. It now shows a close in the oscillator on January 16 of -7. This means that the downtrend was not broken as I thought in Tuesday’s column on healthcare stocks.
The 2.6% decline in Johnson & Johnson (JNJ) hurt the Dow Industrials as it was just barely higher, while the retailers were hit as both Ann Inc. (ANN) and HHGreg Inc. (HGG) both lost over 7%. The Dow Transportations led the market higher on Tuesday as it was up 0.90%.
This index is often a market leading sector as it topped out at the end of November, while the S&P 500 made its high on December 23. Some of the strong railroad stocks have corrected sharply on worries that weak oil prices would drag down earnings. Union Pacific (UNP) is down 7.8% from its 52-week high, CSX Corp. (CSX) is down 7.9% while Kansas City Southern Inc. (KSU) is down over 13%.
The leading Transport’s ETF appears to be turning the corner and there is one railroad stock that may have already seen its lows.
Chart Analysis: The iShares Dow Jones Transportation (IYT) declined for the first three weeks of 2015 as the 20-week EMA was tested last week.
- IYT did rebound Friday to close back above the quarterly pivot at $156.15.
- The weekly chart shows an apparent continuation pattern, with the weekly resistance in the $165 area.
- The weekly starc+ band is at $172.15.
- A higher close in IYT this week will suggest the correction is likely over.
- Such a close will push the weekly relative performance back above its WMA.
- A break of the downtrend in the RS (line b) would be more bullish.
- The weekly OBV confirmed the November highs, but is now below its WMA with key resistance at line c.
- The low last week of $154.04 correlates closely with the weekly low in December of $153.98.
- A strong close above $156 would complete the formation, with the 127.2% Fibonacci target at $171.16.
- The formation projects a move to the $176-$178 area.
- The quarterly projected pivot resistance is at $186.85.
- IYT did violate the 38.2% support of the rally from the October lows, but the 50% support at $152 was not reached.
- The daily RS line has turned up from support and closed Tuesday back above its WMA.
- Consistent with the 6 point checklist, the monthly RS line is well above its WMA.
- The daily OBV has also reached the support from late October, line g.
- The OBV is still below its WMA, but volume over 800,000 with a higher close would be positive.
- There is daily chart support in the $155.50-$156.50 area with the lower daily starc- band at $151.98.
Next: Another Transportation Stock to Watch
CSX Corp. (CSX) is a $34.37 billion dollar company with a yield of 1.80%. They reported 5% increase in revenue on January 12 and are looking for a double digit, per share profit increase in 2015. They have a yield of 1.80%.
- The daily chart shows the low last week at $33.01.
- It closed last week at $34.86, which was above the quarterly pivot at $34.61.
- This was below the 50% retracement support at $33.77, which is calculated from the October lows.
- The 61.8% support is at $32.78 with the daily starc- band at $32.41.
- The daily RS line moved above its WMA but turned down Tuesday as the 20-day EMA was tested.
- The daily relative performance has strong support now at line d.
- The weekly RS line is below its WMA but the monthly (not shown) is bullish.
- The daily OBV has pulled back to its WMA, which is trying to flatten out.
- Both the weekly and monthly on-balance volume (OBV) are above their WMAs.
- The daily chart formation does allow for a test of the lows or even slightly lower lows.
What it Means: Surging consumer sentiment is consistent with many of the economic indicators that point to even stronger growth in 2015.
The current pullback in the iShares Dow Jones Transportation (IYT) and CSX Corp. (CSX) has likely provided a good buying opportunity as both are close to long-term support. The IYT has a tendency to turn quickly, which often does not allow a good entry.
How to Profit: For the iShares Dow Jones Transportation (IYT) go 50% long at $156.74 and 50% long at $154.16 with a stop at $147.79 (risk of approx. 4.9%).
For the CSX Corp. (CSX) go 50% long at $34.27 and 50% long at $33.22 with a stop at $32.07 (risk of approx. 5%).
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