Transports Ready to Shift Into 2nd Gear

• Posted by Greg Harmon
• on July 13th, 2016

The Transportation Index ($IYT) had a much tougher 2015 than the broader market. Where the S&P 500 moved sideways all year the Transports drove lower the entire year. 2016 did not start any better. Transports took a hard fall at the beginning of the year. But they found a bottom in January, a tad quicker than the rest of the market.

That gave hope for the transports to lead the market higher. Bad news, that did not happen. After a quick run higher through to early March they stalled and started to pullback. And that is where they stand today. S&P 500 and Dow Industrials making new all-time highs. Transports lagging. But there may be hope again for a push higher.

The chart above gives the clues. The first thing to note is that pullback in January reversed at a 61.8% retracement of the major run higher from 2012. This is a deep pullback and a classic technical place for it to reverse in a long term uptrend. On a shorter timeframe then the run higher in 9 weekly bars to the upside in a row showed a strong move. The pullback following retraced about 61.8% of that move as well before reversing up again. Now there are 3 weekly bars to the upside (the third in progress) and a Measured Move higher to about 8750. Will it run another 9 week streak to the upside?

Momentum indicators moved up to near bullish ranges on the first leg. And they really have not reset much since. The RSI is just above the mid line, within sight of the 60 level to turn bullish. The MACD is holding near zero. Early in the current week it is moving out of the Bull flag to the upside. Continuation through Friday, and a weekly close over 8000 gives a lot of credibility to a second leg higher. A shift into 2nd gear.

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