Transports Sticking to the ABC’s

• Posted by Greg Harmon
• on November 26th, 2013

The Dow Jones Transportation Index ($DJT) has been one of the stars of 2013 and it continues to make new highs. Last night I noted that some of the train stocks are ready to move and this should keep the transports chugging higher. But the Index itself is interesting to look at too. Using a simple AB=CD pattern shows that it has at least another 3% to go before you should start to worry about any correction. Take a look.

There are two imbedded AB=CD patterns in this monthly chart. The smaller blue one since the 2009 lows shows a point D at 7451 where AB=CD. This is where the 3% upside comes from. But we know that this can get extended to where the CD leg equals 127%, 138.2%, 150% or even 161.8% of the AB leg. The broader purple pattern solidifies this reminder. It is drawn with a 150% extension of the AB leg, to reach 7573.

Can the Index continue higher from there? Of course it can. It is not time to close positions but rather time to get a bit more protective. There will be those that say why risk it for that last 3-5%? And they are right, technically. But the problem with their argument is that you never know where the top will be. If you decided to take off trades in the transports when the purple AB=CD hit a 100% retracement you would have missed 1447 points or the last 20% higher. Trust your stops and let the pullbacks tell you when to exit.

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