5 Reasons to Buy the Transports

07/31/2015 7:00 am EST

Focus: ETFS

Gregory Harmon, CMT

Founder and President, Dragonfly Capital Management

Two weeks ago, Greg Harmon, of Dragonfly Capital, posed the question, "What will happen to the market if the transports turn higher?" Since Thursday's move higher made an important new high, Greg takes to the charts to illustrate why now may be the time to find out the answer.

Transportation stocks have been on my radar for a few weeks, looking for a potential u-turn. They looked to have fallen off at the end of last week as they fell back. But Monday they found support and bounced. This made a higher low and brought them back into focus. Thursday, the move higher made an important new high and now it is time to buy.

Click to Enlarge

The chart above shows five reasons to get involved right now. First and most important, the price is making a new higher high. Coupled with the higher low last week makes for the start of a trend higher. Next, the price broke above the 50-day SMA. This was the first time it closed above the 50-day SMA since March, the start of the move lower, and it did so on strong volume and a long bullish candlestick.

The Bollinger BandsR are opening higher as the price is rising. This is another plus for the Transports. Moving to the top of the chart, the RSI is moving into the bullish zone and rising as it makes a new 4-month high. Finally, at the bottom, the MACD has crossed up and is rising, about to move into positive territory.

I posed the question two weeks ago about what will happen to the market if the transports turn higher. It just might be time to find out.

By Greg Harmon of Dragonfly Capital

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